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Full text of "Report of the Auditor General to the House of Commons (for the fiscal year ended 31 March 1963)"

1 




CANADA 



REPORT OF THE AUDITOR GENERAL 



TO THE HOUSE OF COMMONS 



for the 



FISCAL YEAR ENDED MARCH 31 



1963 








CANADA 






REPORT OF THE AUDITOR GENERAL 
TO THE HOUSE OF COMMONS 

for the 
FISCAL YEAR ENDED MARCH 31 

1963 



69960-3—1 




M3955 



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1963 



TABLE OF CONTENTS 

Page 

Introduction 1 

Standing Committee on Public Accounts 2 

Scope of the Audit 2 

Internal Control 5 

Form and Content of the Estimates 6 

Form and Content of the Public Accounts 7 

Findings of Royal Commission on Government Organization 8 

Summary of Expenditure and Revenue 9 

Expenditure 9 

Agriculture 10 

Canadian Broadcasting Corporation 1 ] 

External Affairs 1 ] 

Finance 1 ; 

Labour l; 

Mines and Technical Surveys 1 ; 

National Defence 1] 

National Health and Welfare 12 

National Revenue 12 

Northern Affairs and National Resources 12 

Post Office 12 

Public Works 12 

Royal Canadian Mounted Police 12 

Trade and Commerce 12 

Transport 12 

Veterans Affairs 13 

Other departments 13 

Revenue 13 

Excise taxes 14 

Customs duties 14 

Excise duties 14 

Return on investments 15 

Net postal revenue 15 

Other non-tax revenues 16 

Comments on Expenditure and Revenue Transactions 16 

Governor General's special warrants 16 

Prairie Farm Emergency Fund deficit 19 

Sale of terminal grain elevator 20 

Questionable charge to Agriculture appropriation (Vote 164) 20 

General election expenditures 21 

Grants and contributions included in general appropriation 24 

ii! 

69960-3— li 



Page 

Reporting for counterpart funds by recipient countries 24 

Government contributions not made to the Public Service Superannuation 

Account 25 

Errors in Public Service Superannuation Account pension and contribution 

calculations 26 

Public Service Superannuation Act — questionable decisions 27 

Pension increased by payment of two salaries 28 

Amount payable to the Superannuation Account deleted from the accounts. . 28 

Inadequate payment into Superannuation Account by Crown corporation. ... 29 

Reciprocal transfer agreements for superannuation benefits 30 

Interest charges on loans to the National Capital Commission 30 

Overpayment to province under the Federal-Provincial Tax-Sharing Arrange- 
ments Act 31 

Indirect compensation to chartered banks 32 

Isolation allowances to judges of territorial courts 32 

I'nemployment insurance administration 33 

National Defence administrative regulations and practices 35 

Educational costs incurred by the Department of National Defence 37 

Unauthorized use of Crown-owned vehicles 38 

Assistance to provinces by the Armed Forces in civil emergencies 39 

Pension awards effective at early age 40 

Discretionary awards of Service pensions 40 

Overlapping of pension benefits 41 

Unemployment Assistance 41 

Hospital construction grants 45 

Indian hospitals and hospital insurance 45 

Improper authorization of use of a Government-owned automobile 46 

Reporting of remissions 47 

Remission of customs duty surcharges 47 

Remissions of sales tax in excess of compromise offers 47 

Payment made for houses the cost of which had previously been provided for 

through loans still outstanding 48 

Payment of maintenance expenses of Civil Service Recreational Association 

Centre 49 

Failure to recover, or seek recovery of, cost of remedial work 49 

Failure to recover part of dredging costs 50 

Construction of ferry landing facilities for provincial government 51 

Cost of constructing additional wharf 52 

Radar equipment acquired but not put into service 52 

Expenditure arising out of accident resulting from improper installation of air 

traffic control equipment 53 

Montreal International Airport construction costs 53 

Catering contract, Montreal International Airport 54 

War Veterans Allowances 56 

Civilian war pensions and allowances 58 

Veterans' hospitals and institutions 58 

Employment of part-time doctors by Department of Veterans Affairs 59 

Awards under the Pension Act 60 

Educational program costs 62 

Overpayments of salary 62 

Granting of sick leave to employees prior to retirement 63 

Identical tenders 64 

Losses reported in the Public Accounts 65 

Non-productive payments 65 

iv 



Page 

Summary of Assets and Liabilities 65 

Assets 66 

Current assets 66 

Advances to the Exchange Fund Account 67 

Sinking fund and other investments held for retirement of unmatured debt. . . 67 

Loans to and investments in Crown corporations 68 

Loans to national governments 69 

Other loans and investments 69 

Securities held in trust 70 

Deferred charges 70 

Suspense accounts 71 

Inactive loans and investments 71 

Liabilities 72 

Current and demand liabilities 72 

Deposit and trust accounts 72 

Annuity, insurance and pension accounts 73 

Undisbursed balances of appropriations to special accounts 75 

Deferred credits 75 

Suspense accounts 76 

Unmatured debt 76 

Net Debt 77 

Contingent Liabilities 77 

Comments on Assets and Liabilities 77 

Accounts receivable 79 

Public Service Superannuation Account 80 

Canadian Forces Superannuation Account 81 

R.C.M.P. Benefit Trust Fund 82 

Members of Parliament Retiring Allowances Account 82 

Crown Corporations 82 

Atomic Energy of Canada Limited 85 

Canadian Arsenals Limited 87 

Canadian Broadcasting Corporation 89 

Canadian Commercial Corporation 91 

Canadian National (West Indies) Steamships, Limited 92 

Canadian Overseas Telecommunication Corporation 93 

Canadian Patents and Development Limited 95 

Cornwall International Bridge Company Limited 96 

Crown Assets Disposal Corporation 97 

Defence Construction (1951) Limited 99 

Eldorado Aviation Limited 100 

Eldorado Mining and Refining Limited 101 

Export Credits Insurance Corporation 102 

Farm Credit Corporation 104 

The National Battlefields Commission 106 

National Capital Commission 107 

National Centennial Administration 109 

National Harbours Board 110 

Northern Canada Power Commission 1 13 

Northern Ontario Pipe Line Crown Corporation 114 

Northern Transportation Company Limited 115 






Page 

Park Steamship Company Limited 116 

Polymer Corporation Limited and subsidiary companies 116 

The St. Lawrence Seaway Authority 118 

Departmental Operating Activities 123 

Agricultural commodities stabilization activities 123 

Hoard of drain Commissioners for Canada 124 

( 'anadian ( ioverninent Elevators 125 

National Film Hoard 127 

Host Office activities 128 

Public printing and stationery activities 128 

Royal Canadian Mint 130 

Airport operations 131 

Special Audits and Examinations 133 

Army Henevolent Fund Board 133 

Atlantic Development Board 133 

The Canada Council , 134 

The Custodian 136 

Exchange Fund Account 137 

National ( iallery of Canada 138 

National Hroductivity Council 139 

Public Printing and Stationery stores 141 

The Queen Elizabeth II Canadian Fund to Aid in Research on the Diseases of 

Children 141 

Royal Canadian Mint stocks 142 

Unemployment Insurance Fund 143 

Yukon Territorial ( lovernment 144 



Appendices 

1. Non-Productive Payments noted in the Audit for the Year ended March 31, 1963. . 148 

2. Summary of Expenditure by Standard Objects for the Year ended March 31, 1963, 

with comparable figures for the Preceding Fiscal Year 158 

3. Summary of Employees authorized for the Public Service, by Departments, Crown 

Corporations and Other Instrumentalities — -March 1963 in comparison with 
March 1962 159 



Exhibits 

(as published in the Public Accounts) 

1. Statement of Expenditure and Revenue for the Fiscal Year ended March 31, 1963 166 

2. Statement of Assets and Liabilities as at March 31, 1963 168 

3. Summary of Appropriations, Expenditures and Unexpended Balances by Depart- 

ments for the Fiscal Year ended March 31, 1963 170 

4. Summary of Revenue by Main Classifications and Departments for the Fiscal Year 

ended March 31, 1963 171 



T 



HE functions and responsibilities of the Auditor General of Canada are outlined 
in Part VII of the Financial Administration Act. 



2. In accordance with the requirement of section 70 of the Act, a Report is now 
made to the House of Commons on the results of the audit examinations for the year 
ended March 31, 1963. Subsection (1) of the section reads: 

"The Auditor General shall report annually to the House of Commons the results of 
his examinations and shall call attention to every case in which he has observed that 

(a) any officer or employee has wilfully or negligently omitted to collect or receive any 
money belonging to Canada, 

(6) any public money was not duly accounted for and paid into the Consolidated Revenue 
Fund, 

(c) any appropriation was exceeded or was applied to a purpose or in a manner not 
authorized by Parliament, 

(d) an expenditure was not authorized or was not properly vouched or certified, 

(e) there has been a deficiency or loss through the fraud, default or mistake of any person, 
or 

(/) a special warrant authorized the payment of any money, 

and to any other case that the Auditor General considers should be brought to the notice 
of the House of Commons." 

3. The Statement of Expenditure and Revenue for the fiscal year ended March 31, 
1963 and the Statement of Assets and Liabilities as at that date, prepared by the 
Department of Finance for inclusion in the Public Accounts, have been examined and 
certified by me as required by section 69 of the Financial Administration Act, subject 
to my comments in this Report. Copies of these financial statements are attached hereto 
as Exhibits 1 and 2. The "Summary of Appropriations, Expenditures and Unexpended 
Balances, by Departments" and the "Summary of Revenue, by Main Classifications 
and Departments", both as included in the 1963 Public Accounts, have also been 
examined and certified and copies are attached as Exhibits 3 and 4. 

4. This Report includes explanatory notes, in paragraphs 17 to 33, regarding the 
major variations between the 1962-63 and 1961-62 expenditures. There is also submitted, 
as Appendix 2, a "Summary of Expenditure by Standard Objects" for the year ended 
March 31, 1963, with comparable figures for the preceding fiscal year. 

5. It will be noted from the Summary of Expenditure by Standard Objects 
(Appendix 2) that the two largest items of expenditure continue to be interest on the 
public debt and civil salaries and wages. Together they totalled $1,782 million and 
represented one-quarter of the total expenditure for the year. The first of these items, 
namely interest on the public debt, is the subject of a detailed appendix in the Public 
Accounts. With respect to civil salaries and wages and following the practice of the past 
several years, Appendix 3 to this Report gives a summarized listing showing the numbers 






2 AUDITOR GENERAL'S REPORT 

of employees authorized for the public service by departments, Crown corporations and 
other public instrumentalities at the close of the fiscal year under review in comparison 
with the numbers at the close of the preceding year, prepared on the basis explained in 
the footnotes to the appendix. 

Standing Committee on Public Accounts 

6. This Standing Committee of the House of Commons last examined my whole 
Report in 1961 when it held 22 meetings between February 22 and June 30, 1961. At 
these meetings the Committee examined my Report to the House for the fiscal year 
ended March 31, 1960 which had been tabled on January 16, 1961. The final report 
of the Committee was submitted to the House on July 1, 1961 and contained 35 
recommendations for improvements in various areas of government operation. 

My Report for the fiscal year ended March 31, 1961 was tabled on January 31, 1962. 
The Public Accounts Committee, however, was not convened during the then session 
of Parliament. 

At the following session the Committee was convened and my 1961 Report referred 
to it by the House. The Committee held its first meeting on December 13, 1962. In 
accordance with past practice, I was asked to submit a follow-up report on action taken 
on the 35 recommendations contained in its report to the House on July 1, 1961. In 
submitting this to the members of the Committee, I was able to report that in 24 of 
the Committee's 35 recommendations, action had been taken by the departments and 
agencies concerned which I felt the Committee might consider appropriate in the 
circumstances. 

My Report for the fiscal year ended March 31, 1962 was tabled on January 21, 1963 
and referred to the Committee on January 23rd. At the request of the House, the 
Committee met on January 29th to consider two of the matters dealt with in that 
Report, namely the refusal of access to certain income tax files and my difficulties in 
recruiting Audit Office staff under existing governmental recruitment procedures. These 
matters were considered by the Committee further on February 1 and February 5, 1963, 
following which the Committee submitted its report thereon. This ended the Committee's 
work as Parliament was dissolved on February 6, 1963. 

Consequently, neither my 1961 nor 1962 Report (except for the two matters referred 
to above) has yet been examined by the Public Accounts Committee. However, on 
October 29, 1963 my 1962 Report was referred by the House to the reconstituted 
Committee, which resumed sittings on November 8, 1963 and is currently in session. 

Scope of the Audit 

7. Examinations of the departmental accounts for the year ended March 31, 1963 
were made in conformity with section 67 of the Financial Administration Act which reads: 

"The Auditor General shall examine in such manner as he may deem necessary the 
accounts relating to the Consolidated Revenue Fund and to public property and shall ascer- 
tain whether in his opinion 






AUDITOR GENERAL'S REPORT 3 

(a) the accounts have been faithfully and properly kept, 

(b) all public money has been fully accounted for, and the rules and procedures applied 
are sufficient to secure an effective check on the assessment, collection and proper allo- 
cation of the revenue, 

(c) money has been expended for the purposes for which it was appropriated by Parliament, 
and the expenditures have been made as authorized, and 

(d) essential records are maintained and the rules and procedures applied are sufficient to 
safeguard and control public property." 

In my Report to the House of Commons for the fiscal year ended March 31, 1962 
I stated that it had not been possible to carry forward the comprehensive audit approach 
to the extent outlined to the House in my 1960 Report and to the Public Accounts 
Committee both in 1960 and 1961, for the reason that I continued to be unable, under 
existing governmental recruitment procedures, to obtain the full staff approved for my 
Office by the Treasury Board. 

The same unsatisfactory situation continued throughout the fiscal year under 
review. Our examinations are conducted on a test basis, the extent of the tests varying 
according to the nature of the transactions and the effectiveness of internal controls. The 
extent to which these test examinations had to be limited by recruitment difficulties 
continued to be a matter of serious concern. As I stated in my Report last year, there 
are altogether too many instances where staff shortages result in the Audit Office 
being unable to carry out its test examinations with sufficient frequency or in sufficient 
depth to achieve even the minimum standard required by modern accepted auditing 
practice. 

The Public Accounts Committee has had this problem under examination since 1960 
and has recommended that appropriate steps be taken to authorize the Auditor General 
to recruit and manage his own staff. In its Second Report 1963 tabled in the House of 
Commons on February 5, 1963 the Committee rendered the following opinion: 

"The Committee on two previous occasions has recommended that immediate attention 
be given to the problem of recruitment of staff by the Auditor General and sees no reason 
at the present time to alter its recommendations made in two previous years. 

"The Committee gave consideration to section 65 of the Financial Administration Act 
and to section 74 of the Civil Service Act. 

"The Committee is of the opinion that consideration be given to amending section 65 
of the Financial Administration Act so as to authorize that the Auditor General recruit 
and manage his own staff with the approval of the Treasury Board and that in the mean- 
time the Civil Service Commission should immediately reconsider its position with respect 
to section 74 of the Civil Service Act, since the Committee is convinced that the special 
character of the Auditor General's work requires that this be done." 

As no action had been taken by the Executive to implement the recommendation 
in whole or in part by the time the reconstituted Committee opened its 1963 meetings 
on November 8th, the Committee asked the Auditor General and the Chairman of the 
Civil Service Commission to explore the problem further and report back to the 

69960-3—2 



A AUDITOR GEN URALS REPORT 

Committee on November 22, 1963. On that date they jointly advised the Committee 
as follows: 

1. The Auditor General and the Civil Service Commission have reached agreement on the 
steps bo be taken to achieve the objectives of the Auditor General in the area of 
recruitment, selection and negotiation with candidates for positions in his Office. 
While giving the Auditor General freedom to recruit staff, these steps contemplate 
adherence to the basic personnel policies and standards sought for the Canadian public 
service by the Civil Service Commission, and the Auditor General has accepted the 
responsibility to see that this is maintained through the medium of effective liaison. 

2. In order to facilitate the achievement of these objectives, the Civil Service Commission 
is seconding a senior employee from its staff to the staff of the Auditor General to 
handle his staff and administrative matters. 

I believe that, following implementation of this arrangement, the Audit Office will 
be in a position to improve the scope of its work in a satisfactory manner. The staff 
shortage which has existed has, of course, continued to limit the scope of work during 
the now current 1963-64 fiscal year. However, I look forward to being able to report 
progress in this regard with respect to the fiscal year 1964-65. 

Subject to the limitations in the scope of our work, referred to above, our examina- 
tions were made in accordance with generally accepted auditing standards and continued 
to include a general review of the accounting procedures and systems of internal control 
together with such tests of the accounting records and other supporting evidence as we 
considered necessary in the circumstances. 

The attention of responsible administrative and accounting officers was directed to 
transactions which, in the Audit Office view, were not in harmony with annual parlia- 
mentary appropriations or continuing statutory financial directions, or which lacked 
conformity with executive orders or regulations. 

Our examinations extended to all departments, Crown corporations and other 
agencies of the Government of Canada, excepting those listed in paragraph 133 whose 
accounts were subject to examination by other auditors. 

The accounts relating to the receipts and disbursements of the Audit Office were 
examined by an officer of the public service nominated for the purpose by the Treasury 
Board, as required by section 75 of the Financial Administration Act. 

During the course of their work, members of the staff of the Audit Office were given 
full access to all vouchers, records and files of the various departments, Crown corpora- 
tions and other agencies. In addition, they were readily provided with all supplementary 
information and explanations required. I take pleasure in expressing my appreciation 
for the co-operation thus extended by departmental and Treasury officers and by the 
administrative and accounting officers of Crown corporations and other agencies. 

The Audit Office has addressed detailed reports to the executive boards of Crown 
corporations and other agencies covering the results of its examinations during the past 
year. These reports give a broad summary of the results of operations for the financial 
year in comparison with previous years, and make comments and offer suggestions 
regarding weaknesses in internal control and other matters noted during the course 



AUDITOR GENERAL'S REPORT 5 

of the audit. Where matters dealt with in these reports were considered to be of interest 
to the House of Commons, references are made in the relevant sections of this Report. 

Internal Control 

8. In previous Reports I have pointed out how, in the operations of a government 
department, Crown corporation or other agency, effective internal control, whether in 
the fields of management, finance or accounting, is of prime importance, not only to the 
managements concerned in the discharge of their responsibilities, but to the external 
auditor in planning the scope of his own work. The fundamental principles underlying 
this have been dealt with at length by the Royal Commission on Government Organiza- 
tion in Volume 1 of its Reports published on September 6, 1962, and I have been glad 
to note the increasing interest in and recognition of these principles by the responsible 
officials of our public service. 

From the point of view of internal control, the three basic requirements of any 
organization are accurate costs, adequate periodic financial statements and an appropriate 
internal audit. The need for accurate costs has been partly recognized by the Department 
of Finance in arranging for the estimating of the annual costs of certain major common 
services, by departments, and showing these costs in summary memorandum form at the 
beginning of the several departmental sections, commencing with the Revised Estimates 
for 1962-63 and now continued in the 1963-64 Estimates Book. However, while showing 
the approximate value of major services to be received by a department from other 
departments in this manner does provide useful information, it continues to have the 
disadvantage of relating the amounts only to the department as a whole, instead of to 
individual appropriations relating to the various work areas or functions. I hope, however, 
now that a start has been made, that steps will be taken as soon as practicable to provide 
for all significant cost factors in the individual appropriations and thus include the actual 
costs of the various programs or projects in accounts of the responsible departments, 
because the departments benefiting from services provided by other departments cannot 
be expected to be conscious of costs for which they are in fact responsible unless they are 
charged with them and have to pay them out of their own appropriations. In my opinion 
this further step could be achieved without the introduction of any complex accounting 
procedures. 

For the past several years I have referred to the need for wider use of effective 
periodic financial statements for the study and control of costs by government depart- 
ments and other agencies so that actual performance can be measured against either 
budget projections based on parliamentary appropriations or actual performance in a 
comparable prior period, or both. The importance of this was stressed last year by the 
Royal Commission on Government Organization which recommended that "departments 
and agencies adopt modern management reporting techniques". As part of its comprehen- 
sive audit approach, the Audit Office has sought to assist departments, Crown corpora- 
tions and other agencies in developing effective periodic financial statements. 

As a matter of generally accepted auditing practice, the Auditor General, in the 
discharge of his statutory responsibilities, must have regard at all times for the 

69960-3— 2\ 



6 AUDITOR GENERAL'S REPORT 

effectiveness of accounting organizations and systems, internal control and audit, including 
pre-audit, and the related administrative practices of departments, Crown corporations 
and other agencies. Internal auditing is an integral part of a department's system of 
management control. Its effectiveness is recognized in determining the scope of the 
external audit, and where the internal auditor's work is efficiently carried out, the 
amount of work to be performed by the external auditor can frequently be substantially 
curtailed. Consequently, the Auditor General is interested in the degree of management's 
acceptance of reported findings and recommendations of its internal auditor and in the 
action taken. In previous Reports I have pointed out that while many of the larger 
departments and Crown corporations maintain their own internal auditing staffs, a 
number have not taken steps along these lines even where the circumstances appear to 
justify it. On the other hand, we find that some internal auditing units are over-staffed 
and tend to duplicate the work of other groups. In the related field of pre-auditing, 
staffs are larger and methods more elaborate than modern practice requires. 

The solution to these problems does not lie in engaging more staff but in making 
more effective use of the staffs presently engaged in internal auditing, including pre-audit 
work, coupled with a freer exchange of ideas among the various departments, Crown 
corporations and other agencies on internal auditing procedures, techniques and program- 
ming. At the same time, recognition should be given to the fact that internal auditing is 
first and foremost a management tool to ensure good performance, and therefore it 
should as far as is practicable be carried out under the direction of top management by 
staff experienced in the techniques and requirements of the particular organization if it 
is to be effective. 

Form and Content of the Estimates 

9. The importance of the Estimates of proposed spending being prepared and 
presented to the House of Commons in the simplest and clearest manner possible must 
be recognized if Parliament is to be in a position to give them the close study and 
consideration they deserve. The form of the Estimates is likewise important from the 
accounting point of view because it determines in large measure how the subsequent 
accounting for expenditure is maintained and reported upon in the Public Accounts. 
Both the form and content are important to the Auditor General because of his 
responsibilities to Parliament. 

The Public Accounts Committee in its Fourth Report 1961, while indicating its 
approval of certain improvements proposed at that time by the Treasury Board staff, 
recognized that there were other possible changes in the form of the Estimates, some 
of them of a fundamental nature, and recommended that these be considered early in 
1962. Consideration was, however, postponed by the Treasury Board staff pending the 
publication of the Reports of the Royal Commission on Government Organization, in 
Volume 1 of which the Commissioners dealt at length with and made a number of 
important recommendations concerning prevailing Estimates procedures. 

On September 30, 1963 the Secretary of the Treasury Board furnished me with a 
copy of a report which, at the direction of the Chairman of the Treasury Board, he had 



AUDITOR GENERAL'S REPORT 7 

addressed to the Chairman of the Public Accounts Committee for attention when the 
Committee was convened and a chairman appointed. This report outlined changes in 
the number and nature of votes in the annual Estimates designed to reduce the number 
of items by consolidation of existing ones. The report states that the Treasury Board 
hopes to introduce these changes into the Main Estimates for 1964-65. These changes 
are currently being studied by the Public Accounts Committee in the course of its 
consideration of the form and content of the Estimates. 

Since 1960 I have recommended that consideration be given to the form of the 
Estimates presentation with a view to providing more meaningful information, and 
since the four examples I gave in my 1960 Report are still pertinent, I now repeat them: 

(a) comparing the amounts estimated for the ensuing year directly with the anticipated 
actual expenditure for the current year, as well as with the amounts that had been 
estimated for the current year; 

(t») giving the estimated amounts in three columns: estimated expenditure (gross); esti- 
mated revenue; and net requirements to be voted (thus giving Parliament an oppor- 
tunity to consider the sufficiency of receipts for services rendered in relation to the 
costs incurred) ; 

(c) including both operating and capital budgets of Crown corporations, even where funds 
will be forthcoming in full from corporate resources (thus giving Parliament an 
opportunity to consider broad policies associated with their operations) ; and 

(d) including appropriate explanations in all cases where expenditures proposed for the year 
involve commitments for future years. 

It is of interest to note that the Royal Commission on Government Organization, 
in its report referred to above, also made recommendations along these lines. 

Form and Content of the Public Accounts 

10. In previous Reports I have expressed the view that as the Public Accounts is in 
effect Canada's annual financial report to its shareholders — the general public — it should 
conform to the highest standards of financial reporting in the country and accordingly 
be presented in a clear and concise manner without being encumbered with unnecessary 
detail. 

Although attention was given to this problem by the Public Accounts Committee 
in its Second Report 1961, I remain of the opinion that further consideration should 
be given towards summarizing or otherwise reducing the number of detailed listings 
presently included in the Public Accounts. On the other hand, as mentioned in previous 
Reports, additional important information should, I believe, be disclosed in the Public 
Accounts. Examples of this are to be found in paragraph 123 suggesting a more informa- 
tive disclosure of accounts receivable due to the Receiver General, and in paragraph 169 
suggesting the inclusion of financial statements of departmental operating activities. 

In my Report last year (paragraph 93) I suggested that explanatory statements 
be given for revenue remissions in the Public Accounts. As more particularly mentioned 
in paragraph 75 herein, it is gratifying to note that this suggestion has now been adopted 
in the Public Accounts for the year under review (pages 37.2 to 37.7). 



8 MDITOR GENERAL'S REPORT 

Findings of Royal Commission on Government Organization 

11. If administrative action has caused or contributed to waste of public money, it 
is the duty of the Auditor General to report such instances as he considers should be 
brought to the notice of the House of Commons. While some instances come to his 
attention directly during the course of his audit work, others are indirectly brought to 
light by action on the part of the administration itself in the course of examining its own 
operations as, for example, through the medium of the internal audit function where 
this exists in the various departments, Crown corporations and other agencies. Such 
cases are always the subject of close study by the Auditor General because of his 
responsibilities to Parliament. 

By the same token, it is the duty of the Auditor General to study reports prepared 
by or for the managements of departments and agencies directed toward the saving of 
public money by the elimination of wasteful practices and unnecessary or uneconomical 
operations. To the extent that such reports correctly indicate where and how savings 
can be made, the Auditor General has a responsibility to Parliament to follow through 
and ascertain what action has been or will be taken toward achieving such savings, or 
if no action is to be taken, to enquire why. 

The past year has seen final publication by the Royal Commission on Government 
Organization of five volumes containing 24 reports on its examination of the organization 
and methods of operation of the departments and agencies of the Government of Canada. 
These reports, which have been the subject of widespread publicity, contain several 
hundred recommendations many of which deal directly or indirectly with areas in which 
public funds might be saved or better value obtained for money spent. The reports and 
the recommendations they contain are the subject of continuing study by a government 
office specifically created for the purpose, namely, the Bureau of Government Organiza- 
tion which is responsible to the President of the Privy Council. The Bureau is engaged 
in assessing the practicability of the various recommendations and in co-ordinating 
efforts by the managements concerned toward remedying the situations disclosed. It is 
essential that all of the Commissioners' findings be thoroughly reviewed and discussed 
with the responsible officials in this way before final solutions can be developed and 
decisions taken to implement the recommendations in whole or in part, or not at all. 
On November 5, 1963 the President of the Privy Council tabled in the House of 
Commons a listing of 68 of the Commissioners' recommendations which the government 
has approved to date and in respect of which implementation is proceeding. 

The real value of a report of this type to top management lies in the accuracy of 
the fact-finding and the manner in which the consultant assesses and presents these 
facts in diagnosing the situation under review. Recommendations he may make toward 
remedying undesirable features of such situations are important but the decision as to 
the extent such recommendations are to be implemented is the responsibility of the 
management. 

It is not my intention to express views at this time on any of the individual 
recommendations. With regard to the Commissioners' findings, however, I believe it to be 









AUDITOR GENERAL'S REPORT 9 

of considerable importance that those relating to outdated procedures, uneconomical 
operations and wasteful practices be effectively dealt with not only in the interest of 
improving efficiency but because of the substantial savings of public funds which 
could result. 

I shall consider it to be my responsibility to follow through on the action taken 
on such findings of the Royal Commission on Government Organization and to report 
thereon to the House of Commons. 



Summary of Expenditure and Revenue 

12. The Statement of Expenditure and Revenue for the fiscal year ended March 31, 
1963, prepared by the Department of Finance for inclusion in the Public Accounts and 
certified by the Auditor General as required by section 64 of the Financial Administration 
Act, is reproduced as Exhibit 1 to this Report. The statement shows a deficit of $692 
million for the year, in comparison with a deficit of $791 million for the preceding year. 

Expenditure 

13. The Summary of Appropriations, Expenditures and Unexpended Balances, by 
Departments, for the year ended March 31, 1963, as published in the Public Accounts, 
is reproduced as Exhibit 3 to this Report and shows appropriations of $6,690 million, 
expenditure of $6,570 million and unexpended balances of $120 million. 

14. Of the $6,690 million of appropriations available for expenditure in the year, 
$2,588 million was provided by continuing statutory authorities and $4,063 million was 
granted by Appropriation Acts (Nos. 3, 5, 6, 7 and 8 of 1962 and the Special Appropria- 
tion Act, 1963) while $39 million remained available from continuing 1961-62 appropria- 
tions (Votes 614 and 662). 

Of the $6,570 million of expenditure during the year, $2,588 million (39%) was 
incurred under the continuing statutory authorities, with $3,982 million (61%) being 
spent under the authority of the appropriations granted for the year. 

Of the $120 million of unexpended balances at the end of the year, $93 million 
lapsed in compliance with section 35 of the Financial Administration Act and $27 
million of the Department of Labour Vote 32a remained available for expenditure in 
1963-64 because of the special wording in the appropriation, which is as follows: 

"Payments in accordance with terms and conditions approved by the Governor in 
Council to Provinces and in respect of Indian Bands under the Municipal Winter "Works 
Incentive Program during the 1962-63 and 1963-64 fiscal years of amounts not exceeding 
one-half of the cost of labour incurred in the period from the 15th day of October, 1962 
to such day in the fiscal year 1963-64 as may be determined by the Governor in Council; 
and to authorize payments in those fiscal years to Provinces in respect of previous Municipal 
Winter Works Incentive Programs in accordance with terms and conditions approved by 
the Governor in Council— $30,000,000." 



10 AUDITOR GENERALS REPORT 

The date determined by the Governor in Council in accordance with this provision was 
May 31, 1963. 

15. In considering the total of $93 million for lapsed balances at the close of the 
fiscal year (lapsed balances totalled $247 million at the close of the preceding year) 
it should be kept in mind that Parliament had not, up to the time of its dissolution on 
February 6, 1963, approved the Main or Supplementary Estimates for the year and 
the financing of expenditure was therefore by means of interim supply during the first 
ten months of the year and Governor General's special warrants during the last two 
months of the year. The amount of $93 million largely represents the extent to which 
provision was made by the special warrants beyond what proved to be required to make 
"payments urgently required for the public good". Comments regarding the procedure 
followed in determining the amounts provided by the special warrants are made in 
paragraph 45 of this Report. 

16. The following table summarizes the expenditure, by departments, for the fiscal 
year 1962-63, in comparison with the corresponding amounts for the two previous years: 

1060-61 1961-62 1962-63 

Agriculture $ 264,915,000 $ 286,684,000 $ 234,827,000 

Canadian Broadcasting Corporation 66,766,000 78,161,000 80,816,000 

Citizenship and Immigration 61,049,000 65,016,000 66,237,000 

External Affairs 103,023,000 95,571 ,000 85,197,000 

Finance 1,460,027,000 1,511,953,000 1,355,080,000 

LaSour 121,336,000 168,885,000 348,236,000 

Mi-ies and Technical Surveys 59,120,000 67,599,000 71,130,000 

National Defence 1,517,531,000 1,626,104,000 1,574,854,000 

National Health and Welfare 887,147,000 1,040,276,000 1,123,421,000 

National Revenue 73,261,000 75,330,000 78,608,000 

Northern Affairs and National Resources . . 71,613,000 79,367,000 87,564,000 

Post Office 178,372,000 185,003,000 189,344,000 

Public Works 200,892,000 188,813,000 171,3S5,000 

Royal Canadian Mounted Police 56,023,000 60,497,000 65,424,000 

Trade and Commerce 24,447,000 42,447,000 30,365.000 

Transport 336,447,000 410,391,000 416,019,000 

Veterans Affairs 292,298,000 333,223,000 335,602,000 

Other departments 183,834,000 205,326,000 256,233,000 

S 5,958,101,000 $ 6,520,646,000 $ 6,570,342,000 



Comments are made in the following paragraphs regarding the significant increases 
or decreases in individual appropriations or groups of appropriations which mainly 
accounted for the variations between the departmental expenditure totals listed above 
for 1961-62 and 1962-63. 






17. Agriculture. The decrease of $52 million or 18% in expenditure by this 
Department in 1962-63 in comparison with the preceding year was more than accounted 



AUDITOR GENERAL'S REPORT 11 

for by decreases of $40 million — from $47 million to $7 million — in the deficit of the 
Prairie Farm Emergency Fund (see paragraph 46), $40 million in payments to western 
grain producers (there being payments of only $139,000 in 1962-63) and $14 million in 
assistance payments on storage costs of grain. However, these reductions in the Depart- 
ment's expenditures were partly offset by an increase of $50 million — from $22 million 
to $72 million — in the net operating loss of the Agricultural Stabilization Board, mainly 
due to payments for the stabilization of the price of butter. 

18. Canadian Broadcasting Corporation. The appropriations providing for grants 
to this Corporation were charged $81 million during the year, an increase of $3 million 
or 3.3% over 1961-62. The increase was due to the higher net operating requirements 
of the radio and television services which amounted to approximately $73 million in 
1962-63 compared with $70 million in the preceding year. 

19. External Affairs. The decrease of $10 million or 11% in this expenditure was 
more than accounted for by a reduction of $8 million (17%) in contributions to the 
Colombo Plan Fund, and to there being no expenditure in the year comparable to the 
$6 million outlay in 1961-62 for the United Nations Congo Ad Hoc Account. On the 
other hand, there were increases of $2 million in the cost of representation abroad and 
$1.5 million in direct assistance to other countries. 

20. Finance. The 1962-63 expenditure of $1,355 million by this Department was 
$157 million or 10% less than the total spent in the preceding year. There was a 
significant decrease of $261 million — from $503 million to $242 million — due to the 
termination of payments under the Federal-Provincial Tax-Sharing Arrangements Act, 
1956, c. 29 (under the Federal-Provincial Fiscal Arrangements Act, 1960-61, c. 58, 
payments of $368 million were made to the provinces with effect from April 1, 1962 out 
of a special account to which are credited provincial taxes collected on behalf of the 
provinces). The decrease of $261 million was partly offset by increases of $79 million 
(10%) in interest on the public debt, $10 million in premium, discount and exchange 
expense (a credit in 1961-62) and $7 million (36%) in grants to universities. 

21. Labour. Expenditure by this Department increased by $179 million or 106% 
over the preceding year, largely accounted for by payments to the provinces to provide 
financial assistance for vocational and technical schools and training programs increasing 
by $172 million— from $36 million to $208 million. 

22. Mines and Technical Surveys. The increase of $4 million or 5% in this expendi- 
ture in 1962-63 was largely due to an increase of $3 million (22%) in outlays under the 
Emergency Gold Mining Assistance Act, R.S., c.95. 

23. National Defence. The expenditure of $1,575 million in 1962-63 by this Depart- 
ment was $51 million or 3% less than in the preceding year due to a reduction of $67 
million (9%) in expenditure of the Royal Canadian Air Force, partly offset by an 
increase of $14 million— from $11 million to $25 million— in Mutual Aid to NATO 
countries. Expenditures of the other Services were approximately the same as in 1961-62. 



12 AUDITOR GENERALS REPORT 

24. National Health and Welfare. The expenditure of $1,123 million represented 
an increase of $83 million or 8% in 19G2-63 compared with the preceding year and was 
largely accounted for by increases of $53 million (19%) in the Government's contribu- 
tions under the Hospital Insurance and Diagnostic Services Act, $11 million (2%) in 
family allowance payments and $7 million (24%) in old age assistance. 

25. National Revenue. Of the $3.3 million or 4.4% increase in expenditure recorded 
for this Department in 1962-63, $0.7 million (1.7%) was in the Customs and Excise 
Division and $2.6 million (7.3%) in the Taxation Division, due to general increases in 
administrative costs in both Divisions. 

26. Northern Affairs and National Resources. Expenditure by this Department 
increased by $8 million or 10% in comparison with 1961-62. The most significant change 
was in the Northern Administration Branch where expenditure was up $10 million — 
from $32 million to $42 million. Expenditure by the Water Resources Branch was up 
$3 million, more than doubling the amount spent by this Branch in the preceding year. 
These increases were partly offset by decreases of $3 million (10%) in the amount spent 
by the National Parks Branch and of $2 million (14%) in contributions to provinces to 
assist in the development of roads leading to resources. 

27. Post Office. This expenditure increased by $4 million or 2% in the year, due 
mainly to general increases in the cost of operations. 

28. Public Works. The decrease of $17 million or 9% in expenditure by this Depart- 
ment compared with the preceding year was mainly accounted for by a reduction of $9 
million (21%) in outlays connected with the construction of the Trans-Canada Highway 
and one of $6 million (18%) in harbours and rivers engineering services. 

29. Royal Canadian Mounted Police. Expenditure incurred by the Force increased 
by $5 million or 8% during 1962-63 mainly in the cost of operation and maintenance of 
the Land, Air and Training Divisions. 

30. Trade and Commerce. Expenditure by this Department decreased by $12 million 
or 28% during the year under review due primarily to the decrease of $11 million in 
outlays by the Dominion Bureau of Statistics — from $12 million to $1 million — in respect 
of the 1961 Decennial Census of Canada. 

31. Transport. Although the expenditure of $416 million by this Department in 
1962-63 represented an increase of only $6 million or 1.4% over the preceding year, there 
were significant changes in several individual expenditure classifications. There were 
increases of $20 million — from $2 million to $22 million— in capital subsidies for the 
construction of commercial and fishing vessels, $12 million (42%) for railway and steam- 
ship services, and $9 million (18%) for marine services. Largely offsetting these increases 
were reductions in the deficits of the Canadian National Railways and Trans-Canada 



AUDITOR GENERAL'S REPORT 13 

Air Lines of $18 million (27%) and $3 million (45%) respectively, and a decrease of $13 
million (9%) in air services, together with a decrease of $3 million (3%) in outlays by 
the Board of Transport Commissioners. 

32. Veterans Affairs. An increase of $8 million (9%) in war veterans allowances and 
other benefits was largely offset by minor decreases in other items of expenditure classi- 
fication resulting in the over-all expenditure of $336 million by this Department being 
only $2 million or 0.7% more than in the preceding year. 

33. Other departments. The increase of $51 million in the amount shown for "other 
departments" in the table in paragraph 16 was due largely to the $25 million write-off 
in 1962-63 of the undepreciated capital cost of the NRU reactor of Atomic Energy of 
Canada Limited and the $11 million expenditure by the Office of the Chief Electoral 
Officer for the general election in June 1962. 

Revenue 

34. The Summary of Revenue, by Main Classifications and Departments, for the 
year ended March 31, 1963, prepared by the Department of Finance for inclusion in the 
Public Accounts and certified by the Auditor General, is reproduced as Exhibit 4 to this 
Report. The summary shows tax revenues accounting for $5,237 million of the total 
revenue of $5,879 million. 

35. The following table summarizes the revenue, by principal sources, for the past 
three years: 

1960-61 1961-62 1962-63 

Tax revenues: 

Personal income tax $ 1,711,160,000 $ 1,792,656,000 $ 1,744,626,000 

Corporation income tax 1,276,629,000 1,202,054,000 1,182,837,000 

Income tax on dividends, interest, etc., 

going abroad 88,174,000 112,306,000 129,137,000 

Sales tax 720,617,000 759,678,000 805,971,000 

Other excise taxes 290,658,000 262,526,000 260,378,000 

Customs duties 498,698,000 534,516,000 644,992,000 

Excise duties 344,945,000 362,799,000 381,866,000 

Estate tax 84,879,000 84,579,000 87,143,000 

Other tax revenues 17,000 51,000 27,000 

5,015,777,000 5,111,165,000 5^86,977,000 

Non-tax revenues: 

Return on investments 283,769,000 307,502,000 311,861,000 

Net postal revenue 173,594,000 183,679,000 192,772,000 

Other non-tax revenues 144,540,000 127,278,000 137,099,000 

601,903,000 618,459,000 641,732,000 

$ 5,617,680,000 $ 5,729,624,000 $ 5,878,709,000 



14 AUDITOR GENERAL'S REPORT 

36. The amounts shown for income taxes and sales tax do not include collections 
of taxes levied under the Old Age Security Act, R.S., c.200. These collections, which 
amounted to $091,139,000 in the year, were credited to the Old Age Security Fund. A 
summary of the transactions relating to this Fund during the year, in comparison with 
the corresponding amounts for the two previous years, is given in paragraph 106. 

37. Excise taxes. The following is a summary of the excise taxes, other than sales 
tax, collected during the year ended March 31, 1963, with comparable amounts for the 
two previous years: 

1060-61 1961-62 1962-63 

Cigarettes $ 172,197,000 $ 185,176,000 $ 195,313,000 

Manufactured tobacco 18,697,000 19,599,000 19,123,000 

Toilet articles and preparations 8,406,000 9,397,000 10,142,000 

Television sets and tubes 8,466,000 9,570,000 10,059,000 

Phonographs, radios and tubes 7,460,000 8,853,000 9,875,000 

Jewellery, clocks, watches, chinaware, etc 5,943,000 5,577,000 5,793,000 

Wines 3,224,000 3,350,000 3,727,000 

Cigars 2,755,000 2,775,000 3,372,000 

Sundry excise taxes 4,212,000 3,943,000 3,350,000 

Automobiles 59,627,000 25,270,000 

Refunds and drawbacks — 329,000 — 10,984,000 — 376,000 

$ 290,658,000 $ 262,526,000 $ 260,378,000 






The reduction of $34 million in 1961-62 in collections of excise tax on automobile sales, 
and the elimination of such collections in 1962-63, resulted from the repeal of the tax 
effective June 21, 1961. The repeal of this tax, which was accompanied by remission of 
the tax on automobiles in the hands of dealers, also resulted in the large amount of 
refunds and drawbacks in 1961-62. 

38. Customs duties. The increase of $110 million in customs duties in 1962-63, in 
comparison with the preceding year, was largely due to the collections under the Surcharge 
on Imports Order of June 24, 1962, by means of which customs duties on various classes 
of imports were increased by 5%, 10% or 15% ad valorem, and which remained in effect, 
with modifications, during the balance of the fiscal year. 

39. Excise duties. A listing of the excise duties collected during the year ended 
March 31, 1963, in comparison with the corresponding amounts for the two previous 
years, is given in the following table: 

1960-61 1961-62 1962-63 

Cigarettes $ 140,365,000 $ 151,034,000 $ 157,049,000 

Spirits 108,502,000 114,088,000 122,099,000 

Beer 90,971,000 92,716,000 98,147,000 

Other excise duties 9,328,000 9,521,000 9,463,000 

Refunds and drawbacks -4,221,000 —4,560,000 —4,892,000 

$ 344,945,000 $ 362,799,000 $ 381,866,000 



AUDITOR GENERAL'S REPORT 15 

40. Return on investments. The following is a listing of the revenue from the various 
investments in 1962-63, along with the comparable figures for the two previous fiscal 
years : 

1960-61 1961-62 1962-63 

Bank of Canada $ 90,175,000 $ 107,693,000 $ 96,680,000 

Central Mortgage and Housing Corporation 59,576,000 71,754,000 79,925,000 

Exchange Fund Account 32,536,000 32,606,000 35,227,000 

Loans to National Governments 30,280,000 29,485,000 28,145,000 

Deposits with chartered banks 6,645,000 6,394,000 14,395,000 

Securities Investment Account 5,063,000 15,068,000 12,351,000 

Farm Credit Corporation 4,127,000 5,962,000 8,482,000 

Veterans' Land Act loans 5,212,000 5,895,000 6,549,000 

Northern Ontario Pipe Line Crown Corporation 4,299,000 4,310,000 4,087,000 

Canadian National Railways 4,982,000 1,452,000 3,824,000 

National Harbours Board 3,884,000 3,943,000 3,631,000 

Eldorado Mining and Refining Limited 4,935,000 5,000,000 3,000,000 

Polymer Corporation Limited 3,000,000 3,000,000 3,000,000 

The St. Lawrence Seaway Authority 13,149,000 

Other loans and investments 15,906,000 14,940,000 12,565,000 

$ 283,769,000 $ 307,502,000 $ 311,861,000 



41. The amounts shown for revenue from the investment in the Bank of Canada 
represent the annual profits earned by the Bank and surrendered to the Receiver General 
as required by section 28 of the Bank of Canada Act, R.S., c.13. 

The Central Mortgage and Housing Corporation amount for 1962-63 comprised 
$74,337,000 ($66,022,000 in 1961-62) of interest on advances under section 22 of the 
Central Mortgage and Housing Corporation Act, R.S., c.46, and $5,588,000 ($5,732,000 
in 1961-62) representing the profit for the Corporation's financial year ended December 
31st which was transferred to the Receiver General as required by section 30 of the Act. 

The absence of a return from the investment in The St. Lawrence Seaway Authority 
in 1961-62 and again in 1962-63 was due to the necessity of deferring payment of the 
interest which accrued on loans made to the Authority. Of the $13,149,000 shown as 
revenue from the investment in the Authority in 1960-61, $9,500,000 was received out of 
further borrowings by the Authority from the Minister of Finance expressly for the 
purpose of paying the interest, as was mentioned in the 1961 Report (paragraph 63). 



42. Net postal revenue. The following table shows the gross postal revenue, less 
disbursements therefrom, and the resulting net postal revenue for the past three fiscal 
years : 

1960-61 1961-62 1962-63 

Gross postal revenue $ 201,952,000 $ 213,51S.000 $ 222,300,000 

Disbursements — 
Remuneration of postmasters and staffs at certain 

classes of smaller post offices 24.050,000 25,171,000 25,239,000 

Other disbursements 4,308,000 4,668,000 4,289,000 

28,358,000 29,889,000 29,528,000 

Net postal revenue $ 173,594,000 $ 183,679,000 $ 192,772,000 



16 AUDITOR GENERAL'S REPORT 

The amounts shown for "other disbursements" mainly comprise charges on parcels mailed 
in Canada for delivery in foreign countries and transit charges on Canadian mail for- 
warded through foreign countries, together with compensation paid to messengers for 
special delivery of letters and parcels. 

In paragraph 165 of this Report a summary is given of the Post Office transactions 
for the year under review, in comparison with the corresponding figures for the preceding 
fiscal year, together with comments on the recorded excess of revenue over expenditure. 

43. Other non-tax revenues. An analysis of the amounts shown in the table in 
paragraph 35 for "other non-tax revenues" for 1962-63 with comparable figures for the 
two previous fiscal years is given in the following table : 

1960-61 1961-62 1962-63 

Privileges, licences and permits $ 27,206,000 $ 23,271,000 $ 25,008,000 

Proceeds from sales 23,981,000 25,902,000 26,531,000 

Services and service fees 35.672,000 42,453,000 46,186,000 

Refunds of previous years' expenditure 40,544,000 18,163,000 22,392,000 

Miscellaneous 17,137,000 17,489,000 16,982,000 

S 144,540.000 $ 127.278,000 S 137,099,000 



Comments on Expenditure and Revenue Transactions 

44. Reference has already been made to the statutory responsibility of the Auditor 
General, under section 70 of the Financial Administration Act, to call attention to specific 
classes of transactions observed during his examinations and also to any other matter 
that he "considers should be brought to the notice of the House of Commons". 

Pursuant to this direction, I consider that the following matters relating to the 
expenditure and revenue transactions examined during the fiscal year under review 
should be brought to the attention of the House in this Report. 

45. Governor General's special warrants. At the dissolution of Parliament on 
February 6, 1963 interim supply had been granted generally to the extent of ten-twelfths 
of the amount of the Revised Main Estimates 1962-63. In order to carry on the public 
business until such time as the new Parliament assembled on May 16, 1963, recourse was 
had to Governor General's special warrants, issued under the authority of section 28 of 
the Financial Administration Act, as a means of providing the necessary supply. The 
special warrants relating to the fiscal year under review were as follows: 

(a) one for S239, 143,321, on February 8, 1963, which provided funds on the basis of one- 
twelfth of the amount provided in the Revised Main Estimates and Supplementary 
Estimates (A) and (B) for 1962-63; and 



AUDITOR GENERAL'S REPORT 17 

(b) one for $402,163,293, on March 4, 1963, which provided funds estimated as sufficient 
to meet expenditures urgently required for the public good during the balance of the 
fiscal year. 

In making their estimates of the amounts they required under the final special 
warrant for the year, departments were instructed by the Treasury Board Staff that the 
maximum that could be included for each vote heading should not in any case exceed 
the total of the amounts included in the tabled Estimates (i.e., Revised Main Estimates 
and Supplementary Estimates (A) and (B) for 1962-63) plus amounts included in 
Supplementary Estimates (C) approved by the Treasury Board (though not laid before 
the House of Commons) and departments were instructed to make an internal review 
in order to estimate the amount that would lapse in each vote and take such amount into 
consideration. Departments were also instructed not to include provision for Estimates 
items that: 

(a) were essentially legislative, or 

(b) involved accounting transactions within the Consolidated Revenue Fund that could 
hardly be said to involve "payments" which were urgently required. 

The amounts authorized by these special warrants were subsequently included in the 
amounts authorized by the Special Appropriation Act, 1963 which was passed by the 
House of Commons on July 15, 1963. 

The issuance of Governor General's special warrants is provided for by section 28 
of the Financial Administration Act, subsection (1) of which reads as follows: 

"Where a payment is urgently required for the public good when Parliament is not 
in session and there is no other appropriation pursuant to which the payment may be made, 
the Governor in Council, upon the report of the Minister that there is no appropriation for 
the payment and the report of the appropriate Minister that the payment is urgently 
required for the public good, may by order direct the preparation of a special warrant to 
be signed by the Governor General authorizing the payment to be made out of the Con- 
solidated Revenue Fund." 

It will be noted that the above subsection simply authorizes a "payment" which is 
"urgently required for the public good" when there is no other appropriation pursuant 
to which the payment may be made. The subsection does not provide for any control 
over the entering into of commitments during a period for which Parliament has made 
no provision nor does it appear to contemplate provision of a continuing spending 
authority to the Executive for the financing of general government services during such 
a period. However, this appears to have been assumed by the Treasury Board Staff in 
carrying out the procedure followed in preparing the special warrants for February and 
March 1963. 

A strict interpretation of subsection (1) of section 28 would undoubtedly call for 
the issuance of a large number of warrants with a consequent increase in administrative 
handling. With clearer statutory authority we would not think the procedure whereby 
a single warrant is prepared in advance to cover the requirements of each month is 



18 AUDITOR GENERALS REPORT 

unreasonable provided its contents are limited to providing for payments essential for 
ensuring the maintenance of basic governmental services. Had this approach been fully 
employed in the preparation of the special warrants under review, a number of the items 
included therein would have been omitted because they did not meet the test of being 
"urgently required for the public good". Examples are as follows: 

1. Both special warrants included an item "to supplement other votes, subject to the 
approval of the Treasury Board, for the payment of salaries, wages and other paylist 
items". Obviously payment of the amounts was not urgently required when the special 
warrants wore issued, and the Governor in Council in effect delegated to the Treasury 
Board his authority under section 28 of the Act although there is no provision for such 
delegation. 

2. The special warrant dated February 8. 1963 included authority for the payment of an 
amount of $717,959 into the National Capital Fund. The balance at the credit of this 
Fund at March 31, 1963 was $6,776,000, and it therefore cannot be said that the 
item of $717,959 authorized on February 8, 1963 was "urgently required for the 
public good." 

3. The special warrant dated February 8. 1963 also included authority for the payment 
of an amount of $136,250 to the Receiver General as interest for the month of March 
on loans made to the National Capital Commission for the purpose of acquiring 
property in the National Capital Region. Comment with respect to this procedure 
appears in paragraph 59 of this Report. As such a payment is in effect an internal 
bookkeeping entry, it should not have been provided for by the special warrant. 

4. Included in the special warrant dated February 8, 1963 was an amount of $750,000 
for loans to The St. Lawrence Seaway Authority. Inasmuch as Parliament had, by 
interim supply, authorized loans totalling $7.5 million and the Authority borrowed 
only $1 million in February 1963 and $6 million in March 1963 of which $4.7 million 
was immediately invested in short-term investments, it is obvious that the item of 
$750,000 did not meet the requirement of being "urgently required for the public good". 

5. Included in the two special warrants were amounts totalling $114,950 to cover the 
administrative expenses of the National Gallery of Canada, without taking into con- 
sideration $49,926 available for this purpose in the Gallery's special operating account. 

6. In May 1962 the Department of Northern Affairs and National Resources was given 
executive authority to inform a chartered bank that provision for a grant of $50,000 
to the Dawson City Festival Foundation would be included in Estimates to be pre- 
sented to Parliament in the autumn. On the strength of this, the bank advanced $50,000 
directly to the producers of a musical comedy which was to be the "center-piece" of 
the Dawson City Gold Rush festival. The payment of a grant of $50,000 to the 
Foundation, in order that the bank might be recouped, was authorized by the special 
warrant issued on March 4, 1963. Since the prior concurrence of Parliament is requisite 
to the payment of a grant-in-aid to a non-governmental organization, it is the Audit 
Office view that the grant to the Foundation should not have been made under the 

cial warrant. 

7. A cheque for $6,000 to the Corporation of the Town of Sioux Lookout in respect of 
utility services provided the Sioux Lookout Indian Hospital was issued on April 30, 
1963 and held until June 5, by which time an agreement with the Town had been 
executed. The issuing of the cheque as a charge to 1962-63 Expenditure was, in our 
opinion, irregular because it could hardly qualify as "urgently required for the public 
good" when the cheque was held by the Department, and, indeed, it would have been 
irregular in the circumstances even if parliamentary appropriations had been available. 



AUDITOR GENERAL'S REPORT 19 

We would recommend that a detailed study be made of the financing problems which 
result when Parliament has been unable to make provision for the carrying on of govern- 
mental services between sessions. An amendment to the Financial Administration Act 
might then be considered which would have the effect of assuring appropriate parlia- 
mentary control in this important area. 

46. Prairie Farm Emergency Fund deficit. The deficit in the operations of this Fund 
during the year ended March 31, 1963 was $7,295,000, a decrease of $40,438,000 from the 
deficit of $47,733,000 incurred in the preceding fiscal year, which had been the largest 
since the inception of the Fund in 1939. 

The Fund operates as a special account within the Consolidated Revenue Fund to 
record transactions under the Prairie Farm Assistance Act, R.S., c.213. Under the Act, a 
levy of 1% is imposed on the purchase price of grain purchased by licensees under the 
Canada Grain Act and the moneys collected, which totalled $8,239,000 during the past 
year, are paid directly to the Receiver General and credited to the account. Awards made 
in accordance with the provisions of the Act are charged to the account and during the 
past year these totalled $15,534,000. 

Section 11 of the Act, in providing for this special account, states in subsection (8) 
that: 

"If at any time the Fund is insufficient to pay awards made under this Act the 

Minister of Finance may, out of unappropriated moneys in the Consolidated Revenue Fund, 

with the approval of the Governor in Council, make an advance to the Fund of the amount 

required to meet the deficit." 

Although crop yields had improved considerably over the previous year, it became 
evident once again that the Fund would be insufficient to pay the awards payable under 
the Act during 1962-63. Accordingly, on the submission of the Minister of Finance, the 
Governor in Council granted authority to the Minister to make advances to the Fund 
out of unappropriated moneys in the Consolidated Revenue Fund sufficient to pay awards 
made pursuant to the Act. The amount of such advances, $7,295,000, was treated as a 
deficit and charged directly to Expenditure. As mentioned in last year's Report (para- 
graph 58) the Department of Finance has always followed this practice without seeking 
parliamentary approval. 

On the other hand, the Audit Office has continuously taken the view, restated last 
year, that Parliament should be requested to appropriate funds to cover the deficits, and 
thus given an opportunity to review the results of the Fund's operations. This view was 
supported by the Public Accounts Committee in its Fifth Report 1961 (paragraph 27) 
when, after referring to the fact that the Agricultural Stabilization Act provides for the 
inclusion of an item in the Estimates to cover the net operating loss of the Agricultural 
Stabilization Board in any year, it recommended: 

"that consideration be given to amending the Prairie Farm Assistance Act to provide 
similarly for the inclusion of an item in the Estimates to cover any deficit that might be 
anticipated in the operation of the Prairie Farm Emergency Fund." 

Early in 1963 the Department of Agriculture gave consideration to proposing such 
an amendment to the Prairie Farm Assistance Act and a letter dated March 22, 1963, 



20 AUDITOR GENERAL'S REPORT 

addressed to the Secretary of the Treasury Board by the Deputy Minister of Agriculture, 
included the following: 

. . the purpose of the Auditor General's recommendation for parliamentary review is 
appreciated, and provision for this will be included when other proposals for amendments 
to the Act are presented for ministerial consideration." 

47. Sale of terminal grain elevator. From 1933 until August 1962 the Crown-owned 
terminal grain elevator located at Port Arthur was leased to and operated by a company 
engaged in the grain trade. Order in Council P.C. 1962-1/1643 of November 22, 1962 
(amended by P.C. 1963-1/68 of January 21, 1963) authorized sale of the elevator to the 
lessee for $750,000 and set the annual date of the current lease, August 1, 1962, as the 
effective date of sale. The elevator was not offered for sale by public tender but was 
sold by verbal agreement to the company, at the appraised value placed on the elevator 
by a firm of consulting engineers less the estimated cost of replacements and improve- 
ments required in the ensuing fiscal year. Due to delay in conveyance of title to the 
purchaser, stemming in part from survey imperfections in the Port Arthur waterfront 
area, payment was not made until April 22, 1963. 

The Department of Justice in completing the transaction raised the question of a 
possible claim by the Crown for interest from the effective date of sale (August 1, 1962) 
to the date of payment (April 22, 1963). Correspondence on the files of the Department 
of Agriculture disclosed that the verbal agreement had failed to provide for payment 
of any interest on the purchase money after the effective date of sale, or for payment of 
rent. Therefore no claim for interest was made, and the rent which had been paid by 
the purchaser for the period August 1, 1962 to January 31, 1963, in the amount of 
$37,500, was refunded. 

48. Questionable charge to Agriculture appropriation (Vote 164)- This appropriation 
reads : 

"Amount required to recoup the Agricultural Products Board Account to cover the 
net operating loss recorded in the Account as at March 31, 1963 — §870,014." 

The amount of $870,014 recorded for the net operating loss of the Agricultural Products 
Board for the year ended March 31, 1963 included $364,000 for donations of 4,064,000 
pounds of skim milk powder to international charitable organizations. The donations 
were made in consultation with the Department of External Affairs and the authority 
relied on was Order in Council P.C. 1962-1576 of November 6, 1962 which purported to 
be issued pursuant to subsection (1) of section 4 of the Agricultural Products Board Act, 
R.S., c.4. This subsection reads, in part: 

"Subject to the regulations, the Board may, with the authority of the Governor in 
Council and under the direction of the Minister 

(c) buy, sell, or import agricultural products." 

Since there is no reference to donations in this subsection, or elsewhere in the Act, 
the propriety of the Board's donating the skim milk powder to the international charitable 
organization — and, therefore, the propriety of reimbursing the Board out of Agriculture 



AUDITOR GENERAL'S REPORT 21 

Vote 164 for this portion of the Board's net operating loss — is open to question. By way 
of contrast, during 1960-61 the Board was reimbursed for a similar donation by the 
Department of External Affairs from Vote 673 of that fiscal year, which gave specific 
authority as follows: "To reimburse the Agricultural Products Board Account for whole 
milk powder donated for international relief purposes — $2,420,000". 

49. General election expenditures. The 1962-63 accounts include expenditures of 
$10,325,533 in respect of the general election held on June 18, 1962 and expenditures of 
$1,137,813 towards the cost of the general election held on April 8, 1963. Up to the end 
of August 1963, expenditures on the two elections amounted to $10,556,889 and $12,225,517 
respectively, with an estimated $100,000 of accounts remaining to be approved for pay- 
ment in connection with the 1963 election. The increase in the cost of the second election 
was due largely to upward revisions in the tariffs of fees authorized by the Governor in 
Council by Orders in Council P.C. 1963-188, P.C. 1963-189 and P.C. 1963-190 of February 
6, 1963. The allowances payable to returning officers were increased by approximately 
25%, with the minimum allowance for personal services remaining at $1,500. There were 
similar increases in the allowances provided for other election officers, including deputy 
returning officers, poll clerks, enumerators and election clerks. Allowances for other 
services, travelling expenses, and printing were also increased, and the allowance for the 
rental of each ordinary polling station established in a building was increased from $20 
to $24. 

The following financial aspects of the administration of the two general elections 
were noted in the audit: 

1 . advance polls. — Under the provisions of the former Canada Elections Act, R.S. 1952, 
c. 23, the privilege of voting at an advance poll was restricted to persons whose occu- 
pations necessitated absence from their ordinary places of residence on polling day. 
It was also provided that if a total of less than 15 votes were cast at an advance poll, 
the Chief Electoral Officer should delete the name of that place from the authorized 
schedule of advance polls. 

The Canada Elections Act, 1960, c. 39, extended the privilege of voting at an 
advance poll to any elector who has reason to believe that he will be absent from his 
polling division and unable to vote on the ordinary polling day, with a consequent 
increase in the number of advance polls, but the provision regarding the disestablish- 
ment of an advance poll where less than 15 votes were cast was not incorporated in 
the 1960 Act. 

Less than 15 votes were cast at each of 586 of the 1,862 advance polls established 
for the 1962 election and no votes were cast at 35 of these polls. The cost of the 586 
polls was estimated at $76,000. There were 1,791 advance polls for voters in the 1963 
election, of which 578 reported less than 15 votes each. No votes were cast at 26 of the 
advance polls, one vote was cast at each of 44 polls and two votes were cast at each 
of 34 polls. 

2. revision of boundaries of polling divisions. — Section 11(1) of the Canada Elections 
Act provides that the polling divisions shall be those established for the last general 
election, unless the returning officer considers that a revision of the boundaries thereof 
is necessary. General revisions of boundaries were ordered by the Chief Electoral Officer 
in January 1961, in January 1962 and in July 1962, the cost in each case approximating 
$150,000. Instances were noted where the descriptions of boundaries, after revision, 



AUDITOR GENERAL'S REPORT 

were identical with the descriptions of the polling divisions given in the Notice of Grant 
of Poll at the previous general election. It was explained that the main purpose in order- 
ing the general revisions was to keep the election machinery in a state of preparedness. 

3. advances made to electiox OKHCERS. — It has been the practice over the years to make 
accountable advances to election officers for the payment of office rental and various 
other expenses incurred in connection with an election. In June 1958, when authority 
could not be found for the making of such advances, we suggested to the Chief Electoral 
Officer and to the Comptroller of the Treasury that, until such time as the Canada 
Elections Act might be amended, the claims should be paid by separate cheques issued 
from the Office of the Comptroller of the Treasury at Ottawa, and sent direct to each 
person entitled to payment, as stipulated in paragraph (b) of subsection (3) of section 
60 of the Act. 

The provisions of section 60 were re-enacted, without material change, in the 
Canada Elections Act, 1960, c. 39, and in April 1962 we again drew attention to the 
lack of authority for advances to election officers. During the ensuing 1962 election, 
some $400,000 was advanced to election officers, the advances to individuals ranging 
from $200 to $10,000. It was noted that 32 of the 263 returning officers did not request 
or receive advances. 

The Chief Electoral Officer, in his report to the Speaker of the House of Commons 
on the 1962 general election, recommended that the Canada Elections Act be amended 
to provide authority for the payment of an accountable advance to an election officer, 
limited to an amount deemed necessary to defray such office and other incidental 
expenses as may be approved under the tariff of fees, costs, allowances and expenses. 

Although the proposed amendment was not enacted, $373,000 was advanced to 
returning officers for the payment of expenses in connection with the 1963 general 
election. 

4. rental of furniture for ordinary polling stations. — The Elections Fees Tariff 
provides an allowance ($20 in 1962; $24 in 1963) for the rental of each ordinaiy polling 
station established in a building or part of a building, including fuel, light and furniture, 
and when a number of polling stations are centralized in a hall or municipal building 
the allowance is paid for each polling station established therein. In the audit of the 
1962 election accounts, additional expenditures were noted for the cartage and rental 
of furniture without a corresponding reduction in the amounts paid to the landlords. 

"When a new tariff of fees was authorized in February 1963 the item which provides 
for the necessary rental or purchase of screens or any material used for voting com- 
partments in polling stations was extended to include the rental of furniture. 

5. printing of ballot papers. — As in the 1957 and 1958 general elections, the number of 
ballot papers printed in some electoral districts in 1962 and 1963 far exceeded the 
number of electors. An excess of more than 40% was noted in 20 districts in 1962 and 
in 28 districts in 1963. In one constituency with 18,000 electors, 26,400 ballot papers 
were printed in 1962 and 30.000 in 1963. 

6. travelling allowances paid to election clerks. — There is provision in the tariff of 
fees for the payment of mileage to an election clerk when he is required to travel in 
connection with the conduct of an election. When it was observed in the audit of the 
1962 election accounts that payments had been made to election clerks for travelling 
between their places of residence and the offices where they worked, attention was 
drawn to the General Election Instructions for Returning Officers which state that an 
election clerk must be an ordinary resident of the locality where the returning officer 
will open his office for the conduct of the election. Payments of this nature were dis- 
continued, but no action was taken to recover the amounts already paid. 



AUDITOR GENERAL'S REPORT 23 

7. employment of constables. — The authority for the appointment of a constable at a 
polling station is section 48 (10) of the Canada Elections Act, which provides that: 

"Any deputy returning officer may appoint a constable to maintain order in his polling station 
throughout polling day; this authority, however, shall not be exercised unless the services of such 
constable are deemed absolutely necessary; a constable may be appointed only when there is actual 
or threatened disorder, or when it is likely that a large number of electors will seek to vote at the 
same time; generally the appointment of one constable shall be made where more than one polling 
station is established in the same building or in adjoining buildings for a given polling division, 
to ensure the successive and prompt entrance of the electors into their proper polling station." 

Just prior to the 1962 election, the Chief Electoral Officer circularized the returning 
officers in 52 electoral districts regarding the employment of an excessive number of 
constables on election days in 1957 and 1958 (referred to in paragraph 101 of our 1958 
Report). As a result there were 2,183 fewer constables employed in 1962 than in 1958, 
although the number of polling stations had increased by 2,823. The reduction in the 
number of constables employed would have been greater had there not been included 
in the tariff of fees an additional item providing an allowance of $6 for the services 
of a constable at an advance polling station. In some districts constables were employed 
at advance polling stations where few, if any, electors voted (in one district where only 
four electors voted in advance of polling day, constables were employed at each of the 
five advance polling stations). Constables were also employed at some revisal offices, 
and payments (at $15 per day in 1962 and $17 per day in 1963) were made to a number 
of women who acted as special constables in places where more than one polling station 
was located. 

In a number of cases noted in the audit of the 1963 election accounts, a constable 
had been appointed at each polling station where two or more polling stations were 
established at the same location. 

In two cases duplicate payments were made when two deputy returning officers 
each certified that the same person had acted as constable at his polling station. 

8. duplicate charges. — For all personal services, a returning officer receives allowances 
based on (a) the number of names included in the preliminary lists of electors in urban 
areas, (6) the number of polling stations in rural areas, and (c) the number of advance 
polling stations established in the electoral district. Payments made to individual 
returning officers for personal services during the 1963 election ranged in amount 
from the prescribed minimum of $1,500 to $8,600. Cases were noted in the audit of the 
election accounts where payments at the rate of $12 per day had been made to other 
persons, classed as election clerks and messengers, for selecting enumerators, deputy 
returning officers and polling stations. Normally these duties are considered to be part 
of the function of the returning officer. 

9. allowances paid to special election officers. — The Canadian Forces General Elec- 
tions Fees Tariff which was in force during the 1962 general election provided for pay- 
ment of allowances to special returning officers and chief assistants, deputy special 
returning officers and scrutineers "for each day or part thereof of necessary absence from 
place of residence", and for payment of travelling and living expenses. In the audit of the 
accounts, cases were noted where the whole amount of the daily allowance had been 
paid for any portion of a day spent in travel (in some cases from 11 p.m. to midnight). 
The Chief Electoral Officer decided that, thenceforth, an officer who had departed from 
his home after 6 p.m. to take up his duties would not qualify for an allowance for that 
day, and that the availability of convenient transportation facilities to enable an officer 
to arrive at his place of duty on time would be taken into account. A number of 
accounts which had been approved for payment were recalled and reduced, and . in 
other cases recovery was made from fees which became payable in respect of the 1963 



M AUDITOR GENERALS REPORT 

election. The reference to part of a day was dropped when a new tariff of fees was 
approved in February 1963. 

One special returning officer in 1962 was paid the prescribed allowance of $30 
per day for two days on which he had left his place of residence for Ottawa at 
11.15 p.m. and for two days when he was at home. When the overpayment was col- 
lected from a subsequent account the officer claimed four days pay at $30 per day for 
personal services after the closing of the election office. Payment was approved under 
Item 9 of the tariff of fees which states that, in any case where the allowances provided 
by the tariff of fees do not by reason of special circumstances constitute adequate 
remuneration, the Chief Electoral Officer may authorize the payment of such increased 
allowance as is deemed necessary to provide sufficient remuneration. It is our opinion 
that, in the case in question, the claim, when approved, should have been submitted 
to the Governor in Council for authorization under subsection (6) of section 60 of the 
Canada Elections Act which reads: 

"Whenever it appears to the Governor in Council that the fees and allowances provided by the 
tariff are not sufficient remuneration for the services required to be performed at any election, or 
that any claim for any necessary service performed, or for materials supplied for or at an election, 
is not covered b}' such tariff, he may authorize the payment of such sum or additional sum for 
such services or materials supplied as is considered just and reasonable." 

The Chief Electoral Officer, in his report to the Speaker of the House of Commons 
on the 1963 general election, suggested that section 60 of the Canada Elections Act 
be amended by adding thereto, immediately after the subsection quoted above, the 
following as subsection (6a) : 

"The Chief Electoral Officer may, in accordance with regulations made by the Governor in 
Council, in any case in which the fees and allowances provided for by the tariff are not sufficient 
remuneration for the services required to be performed at any election, or for any necessary service 
performed, authorize the payment of such sum or additional sum for such services as is considered 
just and reasonable." 

The proposed amendment, if enacted, would provide statutory authority for pay- 
ments of the kind heretofore made under Item 9 of the tariff of fees, the authority for 
which item has been in doubt. 

50. Grants and contributions included in general appropriation. It is an established 
principle that when a grant or contribution is made out of a general appropriation, the 
amount should be referred to in the text of the appropriation because Parliament should 
sanction an outlay where no accounting is to be made of its ultimate disposition. 

This principle was not followed in Citizenship and Immigration Vote 10 which reads: 
"Citizenship Branch including grants and contributions for citizenship promotion". 
Although the text refers to grants and contributions, no maximum total amount is 
specified nor is there reference in the Vote text to the Estimates Details. Thus, because 
Parliament was not asked to approve the specific amount being made exempt from 
ordinary conditions governing accounting for voted money, it was possible for the total 
of the grants and contributions as included in the Estimates Details to be increased from 
S37.000 to $47,000 by transfer between allotments pursuant to section 29 of the Financial 
Administration Act. 

51. Reporting jor counterpart funds by recipient countries. In previous Reports 
references were made to amounts that had been spent out of funds appropriated by 






AUDITOR GENERAL'S REPORT 25 

Parliament for the purchase of commodities supplied by Canada, in accordance with 
agreements with the recipient countries requiring that the commodities be sold or other- 
wise distributed and that "counterpart funds" be set aside by them for subsequent use 
in connection with agreed economic development projects. All of the agreements further 
require that the recipient countries from time to time report the position of their counter- 
part funds accounts to the Government of Canada and, in addition, certain of the agree- 
ments require that these reports be certified by the Auditors General of the recipient 
countries. 

As at March 31, 1963 a total of $197,752,000 had been expended on commodities 
calling for the establishment of counterpart funds, including $17,576,000 expended during 
the year under review. With respect to those agreements requiring that the Auditors 
General of the recipient countries certify the position of the counterpart funds accounts, 
a total of $193,893,000 had been expended by the Government of Canada and the situation 
as regards certification was as follows: 

Certified by Auditors General of recipient countries $ 154,159,000 

Reported but not certified 19,047,000 

Unreported — previous years' expenditures 3,261,000 

Unreported— 1962-63 expenditures 17,426,000 

$ 193,893,000 



With respect to those agreements which do not call for certificates of the Auditors General 
of the recipient countries, a total of $3,859,000 had been expended by the Government of 
Canada and the situation as regards reporting was as follows: 

Reported by recipient countries S 3,249,000 

Unreported — previous years' expenditures 460,000 

Unreported— 1962-63 expenditures 150,000 

$ 3,859,000 



Another requirement of all the agreements with the recipient countries is that 
expenditures out of the counterpart funds on agreed economic development projects be 
reported by the recipient countries and certified by their Auditors General. At the time 
of our examination in October 1963 this information was not completely available and 
the External Aid Office was to determine the extent to which these certificates have 
been received. 

52. Government contributions not made to the Public Service Superannuation 
Account. Subsection (2) of section 32 of the Public Service Superannuation Act, 
1952-53, c. 47, reads: 

"There shall be credited to the Superannuation Account, as soon as possible following 
the authorization of any salary increase of general application to the Public Service, such 
amount as, in the opinion of the Minister, is necessary to provide for the increase in the 
cost to Her Majesty in right of Canada of the benefits payable under this Act, as a result 
of such salary increase." 



26 AUDITOR GENERALS REPORT 

In paragraph 02 of last year's Report, reference was made to the increase in the 
actuarial deficiency in the Superannuation Account when no special contributions were 
made to provide for the increased cost of benefits payable under the Act as the result 
of salary increases that had been granted to substantial groups of civil service classes. 

It had been announced in 1961 that future pay adjustments would be based on a 
program of cyclical salary reviews, and the civil service classes had been divided into 
four large groups for review purposes. 

In December 1962 the Treasury Board approved of salary increases with effect from 
October 1, 1961 for the group which includes the administrative, clerical and related 
classes with about 70,000 employees. Increases were also approved in December 1962 
for nurses and hospital staff with effect from January 1, 1962 and for the Penitentiary 
Service with effect from April 1, 1962. Increases similar to those given civil servants 
were given to employees of certain Crown corporations, including many if not all of those 
that are under the Public Service Superannuation Act. As was the case when salary 
increases were approved in the two previous years, no special contribution was made 
to the Superannuation Account with respect to the increases granted in 1962-63. 

Salary revisions for another large group of employees were approved on July 9, 1963 
with effect from October 1, 1962. 

Thus salary increases have been approved for practically the whole public service 
since 1960 without any special credits having been given to the Superannuation Account 
as required by subsection (2) of section 32 of the Act quoted above. The view taken by 
the Department of Finance that the granting of increases on a cyclical basis does not 
result in a "salary increase of general application" has rendered subsection (2) of 
section 32 of the Act inoperative, with a consequent significant increase in the actuarial 
deficiency in the Account. 

In paragraph 124 of this Report comments are made regarding the balance at 
credit of the Account at March 31, 1963 and the basis of reporting the actuarial 
deficiency. 

53. Errors in Public Service Superannuation Account pension and contribution 
calculations. In the 1961 Report (paragraph 61) and again last year (paragraph 63) we 
reported that our test examinations of the records of the Superannuation Branch of the 
Department of Finance had disclosed a high incidence of error, involving both over- 
payments and underpayments of pension on a continuing basis, and also incorrect 
charges for contributory service. It was pointed out in both Reports that many such 
errors could be avoided were there a complete review or internal audit of the contributors' 
files prior to authorization of the payment of benefits. 

In last year's Report it was stated that we had been informed by the Secretary of 
the Treasury Board in May 1962 that consideration was being given to the re-establish- 
ment of the Comptroller of the Treasury's pre-audit of Superannuation Accounts which 
had been discontinued in 1958. This has not yet been done although various steps were 
taken by the Department of Finance to improve the superannuation administration and 
an improvement was, in fact, noted in the accounts during the year under review. 






AUDITOR GENERAL'S REPORT 27 

However, pension payments under the Public Service Superannuation Act, unlike those 
made under the Canadian Forces Superannuation Act, the Royal Canadian Mounted 
Police Act and the Pension Act, are made without verification by the Comptroller of the 
Treasury of the gross amount of any entitlement, other than a return of contributions. 

During the year it was found that information concerning salary payments by 
Crown corporations whose employees are contributors under the Public Service Super- 
annuation Act was no longer being received in the Central Pay Office, having been 
replaced by a listing of salary rates being paid as at the end of each year. In June 1962 
we inquired of the Superannuation Branch as to what verification was being made of 
the correctness of the employees' contributions which these Crown corporations were 
sending in. In August 1962 we received a reply conceding that there existed a gap which 
should be closed and indicating that a solution to the problem would be worked out. 
In reply to a follow-up inquiry in October 1963, we were advised that no verification of 
these contributions was yet being made. 

54. Public Service Superannuation Act — questionable decisions. Three instances 
were noted in which evidence of doubtful value was accepted as the basis for administra- 
tive decisions. In one of these instances there was a resulting reduction of $4,800 in the 
cost of elective service to a contributor who had retired. In the two other instances 
contributors were able to elect to pay for service on the basis of the rate of salary 
received on first appointment to the public service after World War II and the rate of 
contributions then in effect, rather than on the basis of current rates of salary and 
contributions — the difference in the cost of the service amounting in one case to SI 1,200 
and in the other to $8,600. This was made possible by an amendment to the Public 
Service Superannuation Act in 1960 and an amendment to the Regulations in 1961. 
The amendment to the Act reads as follows: 

"30. (7) The Governor in Council may make regulations prescribing, in the case of a 
contributor who in the opinion of the Minister was one of a class of persons who, pursuant 
to erroneous advice received by one or more persons of that class, from a person in the 
Public Service whose ordinary duties included the giving of advice as to the counting of 
service under this Act or the Superannuation Act, that a period of service of such a person 
before the time he became a contributor thereunder could not be counted by him under the 
said Act, failed to elect under the. said Act within the time prescribed therefor to pay for 
that service, the circumstances under which and the manner and time in which the con- 
tributor may elect to pay for that service, and the circumstances under which and the 
terms and conditions (including conditions as to interest) upon which any such election 
made by him to pay for that service, or any election made by him under paragraph (£>) of 
subsection (1) of section 5 to pay for that service as a period of service described in clause 
(F) of sub-paragraph (iii) of that paragraph, shall be deemed to have been made by him 
under this Act or the Superannuation Act, as the case may be, within the time prescribed 
therefore by the said Act." 

The three contributors (who were considered as constituting a "class") had not elected, 
on permanent appointment to the public service during the years 1949 to 1952, to pay 
for war service, and claimed subsequently that they had been misinformed as to their 
eligibility to elect. It could not be substantiated from departmental records that 

69960-3—3 



28 AUDITOR G EN URAL'S REPORT 

erroneous information had, in fact, been given in these cases. The Superannuation Branch 
accepted a departmental officer's affidavit, taken in 1961, to the effect that he "likely" 
gave incorrect information to one of the contributors in 1950. A personal affidavit was 
accepted from one of the others and the third contributor was included in the "class" 
because, in previous correspondence, he had made the statement that he was ineligible 
to elect. 

Another case is that of a contributor to the Superannuation Account who ceased 
active duty on September 30, 1959 and who was certified by the Department of National 
Health and Welfare in May 1960 as being permanently disabled. Pending the result of 
an attempt to have the contributor's wife appointed administrator of his affairs, action 
was not immediately taken to commence payment of an annuity under the provisions of 
the Public Service Superannuation Act. On August 1, 1961 the Superannuation Branch 
received a notice of termination of employment, effective July 5, 1960, which stated 
that retiring leave had been granted from June 1 to July 5, 1960. The Treasury Board, 
on October 3, 1961, having been informed that the contributor had entered hospital for 
domiciliary care on June 1, 1960 and had become entitled to an annuity when he retired 
from the public service on July 5, 1960, designated the w r ife as recipient of the annuity 
payable to her husband. In April 1962 the Superannuation Branch accepted a second 
notice of termination of employment which showed the date of termination as July 15, 
1960 (one day after the coming into force of an amendment to the Public Service Super- 
annuation Act which provides automatic continuation of Death Benefit coverage and for 
the calculation of annuities on the basis of a six-year rather than a ten-year average 
salary). As a result, Death Benefit coverage of $3,750 was reinstated and the annuitant's 
pension was recalculated and increased by $175 per annum. 

55. Pension increased by payment of two salaries. In 1951 a legal opinion was given 
to the effect that where a civil servant on retiring leave obtains employment with a 
Crown corporation so that, although he may be an employee of the Crown, he is not 
paid out of the Consolidated Revenue Fund, there appears to be no objection to the 
duplicate payment of salary. 

In a recent case, the receipt of two salaries for 55 days during a period of retiring 
leave and simultaneous employment with a Crown corporation, resulted in an increase 
of S120 per annum in the amount of pension paid under the provisions of the Public 
Service Superannuation Act (if the contributor had been re-employed for the entire 
26 weeks of his retiring leave, his pension would have been increased by approximately 
$400 per annum). 

The Superannuation Branch obtained legal advice before approving payment of the 
increased pension. If the Superannuation Account is to be protected from such cases 
in future, it would seem necessary to amend the Public Service Superannuation Act. 

56. Amount payable to the Superannuation Account deleted from the accounts. It is 
provided in subsection (7) of section 7 of the Public Service Superannuation Act that 
whore any amount payable by a contributor into the Superannuation Account by 
reservation from salary or otherwise has become due, but remains unpaid at the time 






AUDITOR GENERAL'S REPORT 29 

of his death, the amount with interest may be recovered, in accordance with the regula- 
tions, from any allowance payable under the Act to the widow and children of the 
contributor. Subsection (6) of section 5 of the regulations states: 

"Where at the death of a contributor any amount payable by him into the Super- 
annuation Account is due and payable and is not paid, the Minister shall, if the amount with 
interest as provided in this section is not forthwith paid by the personal representative of the 
contributor, demand payment from the widow and children, or one or more of them, of 
the contributor, to whom an allowance is payable under the Act and if the amount which 
is due and payable with interest to the date of demand is not paid, it may be recovered 
at any time and, without prejudice to any other recourse available to Her Majesty with 
respect to the recovery thereof, recovery may be made at any time by retention, by way of 
deduction or set-off out of the allowance payable to the widow and children, or one or 
more of them, 

(a) in a lump sum immediately, or 

(b) in instalments for a term specified by the Minister, 

as the recipient elects, with interest at the rate of four per cent per annum." 

A department took exception to the application of this regulation in the case of a 
deceased employee who had been undercharged for a period of elective service, and on 
December 20, 1962 the Governor in Council approved a recommendation of the Treasury 
Board, pursuant to section 23(1) of the Financial Administration Act, that the Depart- 
ment of Finance be authorized to delete from the accounts an amount of $521 that had 
been payable into the Superannuation Account by the late contributor. The action 
taken in this case was contrary to the Public Service Superannuation Regulations and, 
as far as we are aware, is unprecedented. 

If it is found desirable to relieve a person from paying into the Superannuation 
Account any amount that is legally payable thereto, it is the Audit Office view that an 
appropriation should be provided to reimburse the Account. 

57. Inadequate payment into Superannuation Account by Crown corporation. The 
employees of the Canadian Overseas Telecommunication Corporation were brought 
under the Public Service Superannuation Act with effect from November 1, 1961, 
pursuant to Vote 520 of Appropriation Act No. 5, 1961 and the regulations approved by 
the Governor in Council on October 26, 1961. On March 18, 1963 the regulations were 
amended by Order in Council P.C. 1963-441 to provide for payment out of the Super- 
annuation Account of the pensions of four former employees of the Corporation who 
had been retired under another pension plan. The Department of Insurance had 
calculated, in accordance with the interest and mortality tables used for valuation under 
the Public Service Superannuation Act, that an amount of $200,013 would be required 
to be paid into the Superannuation Account in respect of the pension liability, but 
payment by the Corporation of $184,000 (the cost of purchasing the four immediate 
annuities at commercial rates) was accepted, with the approval of the Treasury Board, 
on March 31, 1963. As a consequence, the actuarial deficiency in the Superannuation 
Account at March 31, 1963 was increased by some $16,000. 

69960-3—3} 



30 AUDITOR GENERALS REPORT 

~)S. Reciprocal transfer agree incuts for superannuation benefits. Section 28 of the 
Public Service Superannuation Act authorizes the Minister of Finance, with the consent 
of the Governor in Council and in terms approved by the Treasury Board, to enter into 
an agreement with any public service employer (e.g., a provincial government) for the 
transfer of pension credits when an employee leaves the service of one employer to 
become employed by the other. 

In the execution of agreements, it has usually been found that the terms of the 
Public Service Superannuation Act require a higher rate of contribution than those 
established under the other plans, and that the amounts available for transfer from the 
Superannuation Account are in excess of the amounts required by public service 
employers. While there is provision in the Act for payment by the Minister to a public 
service employer of the amount to be transferred in accordance with a reciprocal transfer 
agreement (employee's contributions, Government's matching contributions and interest) 
there is no provision for a return of any excess amount of contributions to the employee. 
Nevertheless, a common provision in a typical reciprocal transfer agreement reads: 

"... and any excess amount held in respect of the employee and not required to be paid 
by the Federal Minister to the Province will be dealt with, subject to the Federal Act, in 
accordance with an agreement between the Federal Minister and the employee." 

We have been informed by the Superannuation Branch that "this provision is read 
as an agreement between the new employer and the Crown whereby the Crown, on behalf 
of the new employer, deals with certain moneys that would normally form part of the 
transfer. In other words, the Crown is empowered to transfer the whole amount, but as 
the second employer does not require the whole sum under the new pension plan he 
agrees to the Crown paying a portion of the total directly to the transferred employee". 

It is our opinion that the Public Service Superannuation Act should be amended to 
provide for the disposition of any excess amounts of contributions in these reciprocal 
transfer cases. 

59. Interest charges on loans to the National Capital Commission. In the 1961 
Report (paragraph 62) and also in last year's Report (paragraph 66) it was stated that 
it seemed unrealistic to put the National Capital Commission in the position where it 
was required to pay interest on loans obtained from the Government of Canada for the 
purpose of acquiring property in the National Capital Region, when funds to meet the 
interest payments must be provided through parliamentary appropriations. 

Up to March 31, 1963 loans totalling §44,900.000 had been made to the Commission 
and its predecessor, the Federal District Commission (being an increase of $9,800,000 
during the year under review) for the purpose of acquiring property in the National 
Capital Region. Of this amount, 83,994,000 had been repaid, leaving a balance of 
$40,906,000. The loans are secured by promissory notes bearing interest payable semi- 
annually at rates of from 4% to 5£% per annum, and repayment is to be made when 
the property is "used for the purposes of the Commission or disposed of". Repayments 
in 1962-63 amounted to $372,000. 

Interest payments by the Commission to the Receiver General in 1962-63 amounted 
to $1,77(5.000 and were credited to Revenue by the Department of Finance as "return on 



AUDITOR GENERAL'S REPORT 31 

investments". Of this amount, $301,000 came from net income from rentals and interest 
on bank deposits and $1,475,000 was provided by a parliamentary appropriation (Public 
Works Vote 215) for interest charges on outstanding loans. 

The following is a summary of property acquisitions to March 31, 1963 financed by 
means of loans provided to the Commission : 

Greenbelt $27,662,000 

Industrial and railway sites, Sussex Drive and other properties 3,566,000 

Queensway 3,260,000 

Lebreton Flats development 2,524,000 

Ottawa River Parkway 946,000 

Eastern Parkway 854,000 

Other Parkways 864,000 

$39,676,000 



The properties in the Greenbelt are mostly farm properties which are unlikely to yield 
anything approaching sufficient rental to pay interest on the sums paid to acquire them 
and, by Executive direction, they may not be sold. As the lands acquired for the Queens- 
way, the parkways and certain other projects are put into use in the next few years, 
appropriations will be required to provide funds through the National Capital Fund 
in order to pay off the amount of loans made with respect to such lands. 

We remain of the opinion that, since outlays on such properties are in fact expendi- 
tures of the Crown rather than income-producing investments, Parliament should be 
asked to appropriate funds to cover expenditure charges in the years in which properties 
are to be acquired, instead of providing for loans to the Commission and leaving the 
expenditure involved in the repayment of the loans to be absorbed in future years. 

60. Overpayment to province under the Federal-Provincial Tax-Sharing Arrange- 
ments Act. The estimated population figures used in the calculations of amounts payable 
to the provinces under the Federal-Provincial Tax-Sharing Arrangements Act, 1956, c. 29, 
were subject to correction when the population figures resulting from the taking of a 
census became available. Accordingly, when the census figures for 1961 became available 
in 1962, the payments made to the provinces in the years 1958 to 1962 were recalculated 
resulting in additional payments being made to eight of the provinces and establishing 
that overpayments had been made to the other two, as follows: British Columbia, 
$4,818,000; and Ontario, $177,000. 

The agreements with the provinces under the Act provide for immediate repayment 
of any amounts overpaid, and the overpayment to Ontario was recovered from the 
payment due to that Province in March 1963. The Province of British Columbia main- 
tained that the amount of $4,818,000 was not due immediately since the succession duty 
rentals have not been finally determined. An amount of $200,000 was withheld from a 
payment to that Province in March 1963. leaving a balance of $4,618,000 owing at 
March 31, 1963. Subsequently the Province agreed to monthly deductions of $175,000 
which are now being made from amounts payable to the Province. At the time of the 



AUDITOR GENERAL'S REPORT 

signing of the 1957-62 agreements, the provinces had been given the option of receiving 
a succession duly rental on the basis of the one-year yield of these taxes rather than on 
the basis of the three-year average as specified in the Act, provided they made their 

choice known at the beginning of the tax agreement period. British Columbia and two 
other provinces requested the one-year option. A recalculation on the basis of the one- 
year option is expected to result in an increase in the succession duty rentals payable to 
British Columbia for the fiscal years 1957-58 and 1958-59, and these will be applied to 
the outstanding balance of the claim mentioned above. The Department expects that the 
application of these amounts together with the monthly deduction of $175,000 now 
being made will extinguish the debt in full by mid-1964. 

61. Indirect compensation to chartered banks. In Paragraph 68 of last year's Report 
reference was made to an arrangement between the Department of Finance and the 
Canadian Bankers' Association whereby the banks pay interest only on the amount by 
which the government's minimum weekly balances on deposit are in excess of an 
aggregate of $100 million. The arrangement was continued throughout the year 1962-63 
and interest at a rate equivalent to the weekly average accepted treasury bill tender rate 
for three months treasury bills, less 10% of that rate, and amounting to $14,395,000 was 
received from the banks. The corresponding amounts of interest received in the two 
previous years were $6,394,000 in 1961-62 and $6,645,000 in 1960-61. As was pointed out 
last year, the maintenance of substantial balances with the banks, including $100 million 
interest-free, compensates them indirectly for handling cheques or other instruments 
payable by or to the Receiver General, in violation of the requirement of subsection (1) 
of section 93 of the Bank Act, 1953-54, c. 48, which reads as follows: 

"No bank shall make a charge for cashing a cheque or other instrument drawn on 
the Receiver General or on his account in the Bank of Canada or in any other bank, or for 
cashing any other instrument issued as authority for the payment of money out of the 
Consolidated Revenue Fund, or in respect of any cheque or other instrument drawn in 
favour of the Receiver General, the Government of Canada or any department thereof or 
any public officer in his capacity as such, and tendered for deposit to the credit of the 
Receiver General." 

If the banks are to be compensated for services provided to the Crown, consideration 
should be given to the most equitable manner in which this may be done, with statutory 
sanction being given by means of an appropriate amendment to the Bank Act, possibly 
at the time of the decennial revision in 1964. 

62. Isolation allowances to judges of territorial courts. Consideration was given by 
the Department of Justice in the latter part of 1962 to the question of paying isolation 
allowances to the judges of the two territorial courts. Initially the view was taken that 
since judges are not in the "public service" within the meaning of section 7 of the 
Financial Administration Act, the Treasury Board lacked authority under that Act to 
authorize the contemplated allowances and that, as the Judges Act, R.S., c. 159, prohibits 
the payment to a judge of any remuneration, other than a living allowance and moving 
and transportation expenses, the authority of Parliament would be essential to the 
payment of isolation allowances 



AUDITOR GENERAL'S REPORT 33 

It was accordingly decided that, until such time as it might be regarded as appropriate 
to seek an amendment to the Judges Act to provide for additional remuneration to 
judges, each of the judges of the two territorial courts should be paid an isolation allow- 
ance pursuant to an item to be included in the earliest possible Estimates. However, 
Parliament was dissolved before it had an opportunity to consider an Estimates item 
relating to the matter. Nevertheless, with Treasury Board approval, payments of $1,000 
were made in March 1963 to each of the judges of the two territorial courts, for isolation 
allowances at the rate of $2,000 per annum, effective October 1, 1962. 

63. Unemployment insurance administration. The Unemployment Insurance Act, 
1955, c. 50, is administered by the Unemployment Insurance Commission consisting of 
three Commissioners appointed by the Governor in Council. The administrative expenses 
of the Commission are paid out of an annual parliamentary appropriation (Department 
of Labour Vote 50) in accordance with section 10 of the Act. These expenses amounted 
to $48,034,000 in 1962-63 compared with $45,935,000 for the preceding year. Despite a 
reduction in full-time staff from 8,941 at March 31, 1962 to 8,726 at March 31, 1963 
and in casual employees from 1,904 to 1,432 at the respective year-ends, salaries rose by 
$2,242,000, due mainly to a general salary increase granted during the year. This, offset 
to the extent of $285,000 by savings effected in the cost of office stationery, supplies and 
equipment, accounted for most of the net increase of $2,099,000 in administrative expenses 
during the year. 

In our 1960 Report we referred at some length to the broader coverage which had 
been effected over the years, and the resulting decrease in the emphasis on insurance 
principles recognized when the Unemployment Insurance Fund was first established. 
The Public Accounts Committee, having expressed concern over the sharp reduction 
in the balance of the Fund at that time, recommended in its Fifth Report 1961 
(paragraph 80) : 

"that the entire matter undergo immediate and careful study and that action be taken 
to re-establish and maintain the Fund on a basis consistent with insurance principles." 

A special Committee of Inquiry was established by the Governor in Council on 
July 17, 1961 to inquire into and report upon the suitability of the scope, basic principles 
and provisions of the Unemployment Insurance Act, including its relationship to other 
social security programs, the measures needed to deal with seasonal unemployment and 
the means of correcting any abuses or deficiencies that might be found to exist. The 
Committee's report was tabled in the House by the Prime Minister on December 20, 1962. 

The Committee recommended the adoption of a three-part program of support for 
the unemployed, as follows: (i) an insurance plan to cover short-term unemployment, 
with benefits limited to 26 weeks, financed solely by employer-employee contributions; 
(ii) a plan, financed out of general taxation revenues, to provide extended benefits up to a 
maximum of 39 weeks to persons who have exhausted their insurance benefits and, 
subject to certain conditions, to persons whose unemployment follows a seasonal 
pattern; and (iii) an assistance plan to take care of residual 'hard core' unemployment, 

J 



i AUDITOR GENERAL'S REPORT 

applied on a needs-test basis under the present federal-provincial unemployment assist- 
ance program. 

The Committee proposed that the unemployment insurance plan be based on 
insurance principles and to this end it recommended, in part, that: 

(o) the plan be extended to cover all hut a few classes of employees; 

(b) the present seasonal benefit program be amended so that insurance benefits would not 
be paid during any period of unemployment that, on the basis of a claimant's personal 
employment record, is shown to be of a repetitive seasonal character; and 

(c) coverage of self-employed fishermen be withdrawn and replaced by a separate plan 
to be developed under the Department of Fisheries. 

The Committee also made recommendations designed to lessen abuses to which the 
present plan has been subjected. These included the adoption of programs: to provide 
for more active claims supervision and more vigorous follow-up of cases in an effort to 
identify those who are not genuinely seeking employment; to improve interviewing 
techniques and procedures as a means of determining the true facts concerning availability 
for employment; and to increase the extent of post-auditing procedures in connection 
with claims to bring to light possible concealment of earnings. 

The Public Accounts Committee, in its Fifth Report 1961 (paragraph 81), 
recommended : 

"that the Auditor General give consideration to the advisability of increasing the scope of 
his examination of unemployment insurance fund transactions in the field." 

Notwithstanding our continuing staff shortage, arrangements were made to increase the 
number of offices visited in 1962-63, by curtailing other work. 

In keeping with past practice, we reported to the Chief Commissioner on each of the 
examinations made during the year. Prompt attention was given to all audit observations 
raised and corrective action taken where called for. Briefly, our examinations are designed 
to test the adequacy of internal control over the collection of and accounting for contri- 
butions and other income, the payment of benefits and the recording and collection of 
overpayments. The extent to which adjudication of claims complies with the provisions 
of the Act and regulations is likewise examined. In appraising the validity of benefit 
awards, no attempt is made by the Audit Office to verify the accuracy or completeness 
of information regarding claimants, contained in the records of the Commission and 
provided to it by claimants, employers or others, beyond questioning apparent deficiencies 
in these records. This aspect of the verification of claims is carried out by the Commis- 
sion's own investigation-enforcement staff. Although operating at a slightly lower level 
of strength during 1962-63, this staff achieved a slight increase in the number of investi- 
gations completed over that of the preceding year. Notwithstanding this increase, 
penalties imposed on claimants for false or misleading statements were fewer in number, 
totalling 20,367 compared with 22,650 in 1961-62, a drop of 10%. 

The transactions of the Unemployment Insurance Fund, administered by the Com- 
mission, are reported upon in paragraph 181 of this Report. 



AUDITOR GENERAL'S REPORT 35 

64. National Defence administrative regulations and practices. During the year 
under review, as in previous years, instances were observed where the application of 
administrative regulations relating to the Armed Forces had resulted in needless or 
uneconomical expenditure, or were otherwise unsatisfactory from the audit point of view. 
In accordance with past practice, all such instances have continued to be drawn to the 
attention of the Department, and the Services concerned have taken appropriate action 
to obtain amendment of the regulations or otherwise correct the situation, except in the 
following cases where action has not yet been taken or is still in progress: 

1 . REHABILITATION LEAVE FOR FORMER MEMBERS OF BRITISH AND OTHER COMMONWEALTH 

forces. — The regulations permit the inclusion of service in British or other Common- 
wealth forces for the purpose of calculating entitlement to rehabilitation leave on dis- 
charge, provided the entire service is uninterrupted. In this connection, two instances 
were noted where officers who had transferred from the British to the Canadian Forces 
were released with slightly more than ten years service in the latter and, under the 
regulations, each became entitled to rehabilitation leave (based on 37 years combined 
service) of 7£ months valued at approximately $5,000. On questioning this, we were 
informed that the Services have proposed that in any such case in the future the period 
of rehabilitation leave, on which entitlement is based, should be reduced by the period 
of termination leave granted on completion of the previous service. 

2. release from service through purchase. — National Defence regulations prescribe the 
conditions under which "other ranks" may obtain their release from service by purchase, 
the purchase money so received being regarded as partly compensating the Crown for 
its costs in enrolling and training personnel, and then releasing them within short 
periods of time. In the audit it has been observed that while the Air Force and the Navy 
apply the purchase regulation and, in fact, recovered over $100,000 in the last three 
years, the Army suspended its application in 1950, and has since allowed personnel to 
be released "on request" without payment of purchase money. Inasmuch as the reasons 
given for requesting release are in many instances the same in all three Services (for 
example, "to return to school" and "to accept civilian employment") it is not clear 
why the Army policy varies from that of the other two Sendees. We were informed 
that the Army's practice is currently under review. 

3. removal expenses — mobile homes. — The regulations relating to the shipment of 
furniture and effects of servicemen were drafted some years ago when the usual method 
of shipping was by rail or road van. Since then, mobile homes have come into common 
use and the movement of furniture and effects in these homes is being regulated by 
supplementary service orders which provide that when a serviceman owning such a 
home is transferred from one unit to another he may have his home and contents 
hauled by a commercial towing firm at a cost not exceeding that which would be 
incurred were the contents moved in the normal manner by rail or road van, whichever 
may be the more economical. A test-examination of accounts during the year disclosed 
a number of instances where, through the submission of fraudulent receipts and the 
concealing of inadmissible costs, servicemen had been substantially overpaid, princi- 
pally because of ineffective procedures used in verifying the net weight of the contents, 
haulage rates, etc. Although, as a result of the disclosures, new instructions are being 
issued to deal with the situation, it would seem appropriate that the regulations also be 
amended to include directions specifically dealing with the movement of mobile homes 
and their contents. 

69960-3—4 



36 AUDITOR GENERALS REPORT 

4. ki:ii Aiui.ii vimx leave — MISCONDUCT and inefficiency releases. — The regulations pro- 
vide for rehabilitation leave to personnel on release on the basis of thirty days for 
each completed five years of continuous service and seven days for each completed year 
of continuous service under five years. These benefits, however, may not be granted 
if the reason fur the release is misconduct, inefficiency or voluntary. In the audit it 
was noted that members released from the services, under the regulations governing 
compulsory retirement to promote economy and efficiency, for reasons such as "not 
advantageously employable in present rank", and "considered unsuitable for reasons 
other than misconduct, etc.", who are subsequently determined by the Service Pension 
Board for superannuation purposes as being released for "misconduct" or "inefficiency", 
have been granted normal rehabilitation leave allowances. In the opinion of the Audit 
Office, the reason for release as determined by the Service Pension Board on which 
pension benefits are based should also be used to determine entitlement or otherwise 
to rehabilitation leave. 

5. lease termination payments. — Comments regarding regulations governing the reim- 
bursement of servicemen for lease termination payments were made in the 19G0 Report 
(paragraph 56) where it was noted that such outlays were being made up to a maximum 
of three months' rent. After considering the matter at some length and having in mind 
that approximately $500,000 was being spent annually by the Department, as well as 
noting the use by the Royal Canadian Mounted Police of a lease form providing for 
only a 30-day termination clause, the Standing Committee on Public Accounts recom- 
mended in its Fifth Report 1961 (paragraph 52) that the maximum period be reduced 
in future to the equivalent of one month's rent. 

After considering the recommendations of the Public Accounts Committee an 
amendment was made to the regulations during the year which, while providing for 
discretionary powers to be exercised by administrative officers in dealing with individual 
cases, did not, however, reduce the maximum period from three months to one. The 
general practice has continued to be to make reimbursement on the basis of the per- 
missible maximum of three months' rent, and the outlay for lease termination payments 
during the fiscal year 1962-63 amounted to $670,000. 

6. MEDICAL EXAMINATION OF MILITIA RECRUITS FOR THE NATIONAL SURVIVAL TRAINING 

program. — During the period from November 1961 to May 1962 the Army undertook 
a special militia training program which involved recruiting some 90,000 men in four 
separate courses of six weeks duration each. Medical examinations of recruits were 
required on enrolment and also on completion of each course. To carry out the excep- 
tionally large number of examinations quickly, civilian medical practitioners were 
employed either (a) at a rate of $18 per half day or (6) on a basis of $5 per enrolment 
examination and $2 per releasing examination, in accordance with existing regulations. 
It was noted that in some instances, where the second of these methods of 
remuneration was used, the doctors had been paid fees averaging $170 a day, in total, 
including amounts as high as $300 to $400 for specific days. After investigating these 
apparently excessive amounts, the Department concluded that present regulations 
regarding medical fees, while satisfactory under normal conditions, are not satisfactory 
under circumstances similar to those encountered under the special militia training 
program, and decided that special financial arrangements should be made at the outset 
to deal with the medical examination of large numbers of personnel within a short 
period. 

7. excessive PAYMENT of foreign service allowances. — Regulations applicable to the 
Armed Forces provide that an officer going on a training course of less than six months 



AUDITOR GENERAL'S REPORT 37 

duration is not entitled to move his family at government expense nor is he entitled to 
foreign service married allowance. In the audit a case came to attention where an 
officer was posted on a five months' training course to Norfolk, Virginia, and, for the 
reason that immediately following the course he was expected to be posted to Washing- 
ton, D.C., he was allowed to move his family to the latter city at the commencement of 
the course. To regularize payment of moving costs and foreign service allowances, the 
original order posting him to Norfolk was amended retroactively to provide for a 
posting to Washington for three years and transfer from there to Norfolk, on 
temporary duty, for the duration of the training course. This entitled the officer to 
foreign service married allowances, applicable to Washington, during the five months' 
period of the training course. The financial result of this change was that the cost to the 
Crown was increased by some $2,400 over the cost which would have been incurred in 
the normal way had the dependents remained in Canada until the officer had completed 
the course. We were informed by the Department that it was felt to be in the interest 
of the Service that the officer, during the period of the course, was able to be with his 
family on weekends. 

8. clothing credit allowance. — Under the regulations servicemen are entitled to cloth- 
ing allowances of $7 monthly to enable them to obtain the necessary military clothing 
required to "keep up" their kit while in the service. The benefits cease on date of 
release. The Department was asked to comment on the fact that servicemen have 
entitlement to these allowances during periods of rehabilitation leave, when presumably 
they are not on duty and therefore not required to replace worn out or lost kit. While 
the amounts of individual allowances credited to the servicemen during their rehabili- 
tation leave period are normally not large, the aggregate is substantial (about $60,000 
annually) because of the number of personnel released each year. It is also noted that 
the Royal Canadian Mounted Police regulations do not extend entitlement to such 
clothing allowances after the commencement of rehabilitation leave. We were informed 
that the matter is currently under review by the Department. 

65. Educational costs incurred by the Department of National Defence. In the 1962 
Report (paragraph 75) comments were made regarding costs incurred by the Department 
of National Defence, under Executive authority, for the education of children of service- 
men and entitled civilians residing in publicly-owned quarters. It was mentioned that, 
although the educational costs for each fiscal year are not reflected as such in the Public 
Accounts, the Department prepares statements on a memorandum basis for calendar 
years. The statement for the calendar year 1962 shows a total expenditure of $16,365,000, 
offset by provincial grants received to a total of $2,811,000, or a net expenditure of 
$13,554,000. The expenditure total includes $1,276,000 of outlays for new construction 
but does not include the cost of transportation by Service vehicles, furniture and equip- 
ment provided from Service stocks and maintenance supplies and services provided from 
Service resources, nor any portion of the cost of headquarters administration. 

It was noted last year that the over-all pupil-teacher ratio in the departmental 
elementary schools was about 22 to 1 — well below the average ratio for such schools in 
Canada generally — and the comment was made that the Department had undertaken 
to make enquiries into the pupil-teacher ratios at schools where the ratio was less than 
25 to 1. A test examination of the pupil-teacher ratios for the 1963 fiscal year indicated 
that there had been only slight improvement during the year in this regard. 

699C0-3— 4£ 



38 AUDITOR GENERALS REPORT 

Audit examinations at selected departmental schools in Ontario indicated that there 
had been unsatisfactory control over the computation of grants recoverable from the 
provincial Department of Education and in some cases claims had not been made in 
respect of outlays which were eligible for grants. It was also observed that, in certain 
cases, expenditures for such items as transportation and textbooks exceeded amounts 
considered by the Department of Education as adequate. It was suggested to the 
Department of National Defence that the matter be reviewed in order to ensure that 
all grants to which it is entitled are recovered and to establish a means whereby claims 
for grants may be adequately controlled to avoid losses in the future. We have been 
informed that such a review is currently taking place. 

Our audit also disclosed that dependent children of servicemen stationed at the 
R.C.A.F. Station, Bagotville, Quebec, and living in nearby communities, attend depart- 
mental schools located on the station as the local governments do not provide educational 
facilities for the tuition of the children although the servicemen pay taxes, and they 
and their families constitute significant elements of the communities. In consequence, 
the Department is absorbing education and transportation costs for an estimated 192 
pupils living "off base", and this situation was drawn to the attention of departmental 
officers. It was noted after completion of the audit that a submission to Treasury Board 
in August 1963 for authority to enlarge the station schools by six additional classrooms 
to provide accommodation for these dependent children living "off base" was not 
approved pending further discussions with the provincial authorities with a view to 
obtaining their participation in providing and meeting the cost of the six classrooms 
required. 

66. Unauthorized use of Crown-owned vehicles. Reference was made in last year's 
Report (paragraph 82) to cases where accidents which had been costly to the Crown had 
occurred during the unauthorized use of National Defence vehicles, and an example was 
given where a payment of $14,500 had been made to a woman who suffered injuries 
when struck by a departmental vehicle that had been used without authority in England 
in 1958. The driver of the vehicle had been reprimanded and undertook to reimburse the 
Crown S250, being a sum equivalent to the maximum recovery permissible under the 
regulations applicable when vehicles are driven, with due authority, on official business. 
It was mentioned that the Treasury Board had urged all departments and agencies to 
tighten up procedures in view of the increasing number of accidents to vehicles being 
driven by employees while not on duty. We expressed the view that more severe penalties 
assessed against offenders would serve as a more effective deterrent to the unauthorized 
use of vehicles. 

The Department of National Defence considered the matter at length following 
our drawing the above-mentioned case to its attention. A departmental memorandum in 
August 1963 reporting on the result of this consideration put forward the view that 
since payments in respect of claims by third parties are made on an ex gratia basis in 
cases where accidents occur during the unauthorized use of departmental vehicles, 
regulations for recovery in such cases would not be justified, it being stated that "in view 






AUDITOR GENERAL'S REPORT 39 

of the extremely limited applications for recovery by the Crown it does appear that 
there would be difficulty in justifying a departure from the common law position that 
the person who makes an ex gratia payment where there is no legal liability on him to 
do so gains no right of action for recovery from the person whose actions gave rise to the 
claim". The position of the Department of National Defence therefore remains that 
while the National Defence Act provides for disciplinary action in such cases, there is no 
provision for all or any part of expenditure by the Crown to be recovered from servicemen 
involved, except on a voluntary basis. 

During the year under review three instances of accidents involving Crown-owned 
vehicles driven by employees of the Department of Transport, while not acting within 
the scope of their duties, came to attention. In each case the Treasury Board directed 
that the employee concerned reimburse the Crown to the same extent as is provided by 
the Claims Regulations in a case where an employee is considered as having been on duty 
at the time of the accident and to have been negligent to other than a minor extent, 
the result being that there were assessments of one-third in two cases and one-fifth in 
the third, of the cost to the Crown. When giving its ruling in the third case the Treasury 
Board agreed to deal with it on the same basis as in the two earlier cases, but it expressed 
deep concern in the matter and directed the Department that in like cases in the future 
full recovery is to be made from the employees involved. 

In the Audit Office view further consideration should be given to the matter to the 
end that there may be uniformity in the penalties imposed in like circumstances on all 
persons using Crown-owned vehicles without authority. 

67. Assistance to provinces by the Armed Forces in civil emergencies. Section 35 of 
the National Defence Act provides for the employment of the Armed Forces when the 
Governor in Council has declared that a national disaster exists. Although the Act makes 
no provision for the use of the Forces in emergencies not thus declared national disasters, 
the Department of National Defence, on a number of occasions over the years, has 
rendered assistance to provincial authorities in circumstances not rated as national 
disasters. It is the general policy in such cases to grant assistance upon written request by 
the Premier of a province, or by any member of his cabinet authorized by him for this 
purpose, with the province entering into a formal agreement to reimburse the Govern- 
ment of Canada for all expenses to be incurred (except Regular Force pay and allowances) 
and to release the Crown from liability for any loss or damage that might arise out of 
the rendering of assistance. 

On four occasions in the summer of 1961 assistance was given to one province in 
fighting forest fires. In three of these instances provincial ministers signed agreements 
but in the fourth, contrary to the established practice, an agreement was not executed. 
In the course of these fire-fighting operations the Department incurred recoverable 
expenses in the sum of $410,000, including a charge of $59,000 for the use of a helicopter 
which was, in fact, lost in the course of one of the operations. The claim was not 
submitted to the province by the Department until January 1963 and recovery has not 
yet been effected from the province. 



40 AUDITOR GEN URAL'S REPORT 

In the course of our inquiry into this situation it was also noted that billings for 
smaller amounts in the case of two other provinces, relating to similar assistance in earlier 
years, had not yet been paid. 

68. Pension awards effective at early age. For some years it has been observed that 
servicemen are being retired with immediate annuities at early ages — in some cases 
under 30. In such cases the amounts of the annuities are small due to the short periods 
of service, but the potential cost is substantial because of the long expectancy of life. 
In the year under review, 201 servicemen aged 40 and under were retired with immediate 
annuities. 

The Public Service Superannuation Act provides for deferred annuities payable 
at age 60 where persons retire prior to the specified minimum retirement age — except in 
cases of disability, when immediate pensions are awarded. The Department has been 
conducting a general review of benefits payable under the Canadian Forces Superannua- 
tion Act and has been considering the advisability of introducing deferred pensions 
similar to those provided for under the Public Service Superannuation Act. 

69. Discretionary awards of Service pensions. From the examination of the relative 
files it is apparent that, in determining pension awards, every possible consideration is 
given to the welfare of the individual serviceman and it is sometimes questionable 
whether a reasonable balance is struck between fairness to servicemen on the one hand 
and economy of public funds on the other. The following paragraphs illustrate the 
situation. 

Two servicemen who had requested voluntary release before having qualified for 
pensions (in which event only refunds of contributions would have been payable) were 
refused. However, when the minimum period of service required to qualify for annuities 
was reached the men were retired compulsorily. In one of these instances, where contribu- 
tions had amounted to SI, 777, the capital value of the annuity awarded was $29,900; and 
in the other, where contributions had amounted to $2,320, the capital value was $26,900. 

In four instances where servicemen were awarded pensions, having been retired 
compulsorily as "medically unfit", information on file indicated that this reason was of 
secondary importance to others which, had they been assigned officially, would have 
resulted in substantially reduced annuities, with total capital values lower by more 
than $27,000. 

Two instances were observed where servicemen with essentially similar rank, service 
and military records were retired with materially different benefits. In one of these 
instances the serviceman, aged 40, was unable to resolve his domestic and financial 
problems and was considered by his unit to be unemployable. As no improvement 
resulted after repeated warnings, his discharge for misconduct was recommended, with 
pension benefits having a capital value of 835,000. However, he was actually released 
"to promote economy and efficiency" on the basis of a decision by the Service Pension 
Board and this decision established the man's entitlement to an immediate annuity with 
a capital value of $53,700. In the other case, the serviceman, aged 43, regarded as an 



AUDITOR GENERAL'S REPORT 41 

"administrative nuisance" because of his inability to control his personal finances, was 
awarded only a return of contributions amounting to $4,111. 

Under section 10(9) (c) of the Canadian Forces Superannuation Act "a female con- 
tributor who resigns or is compulsorily retired from the forces by reason of her marriage 
shall be deemed to have retired voluntarily from the forces", and such a contributor is 
then entitled to a return of contributions only. A case was noted where an airwoman 
with ten years' service was released in January 1962, the reason for pension purposes 
being finally determined as "to promote economy and efficiency" with the result that 
she became entitled to an immediate annuity. The original reason for the release had 
been determined by the Service Pension Board as "misconduct", in which case a reduced 
deferred annuity would have been payable — and this had the concurrence of the Treasury 
Board. However, the Service did not agree and made representations for a more generous 
annuity, the Service Pension Board finally deciding that the reason for release was "to 
promote economy and efficiency", as mentioned above. The marital status of the air- 
woman changed when she married during the period of rehabilitation leave, yet this fact 
was not recognized in determining her final benefits, the Department taking the position 
that the reason for release crystallized on the last day of service prior to rehabilitation 
leave. Consequently, instead of a return of contributions of SI, 950, she received an 
immediate annuity with a capital value of $12,015. 

70. Overlapping of pension benefits. Two members of the Royal Canadian Mounted 
Police retired on pension in 1952 and were engaged in the Forces on short-service com- 
missions. They continued to draw their pensions of $1,584 and $1,347 per annum, 
respectively, in addition to their Service pay and allowances. After some nine years of 
temporary service they were granted permanent commissions in the Forces whereupon 
they became contributors under the Canadian Forces Superannuation Act. They then 
surrendered their Mounted Police pensions, and elected to count the years of service on 
which these pensions were based (some 20 years in each case) towards their pensions 
from the Forces on eventual retirement. After one further year of military service, both 
officers were retired on full pensions of $4,127 and $4,900, respectively, based on their 
combined service in the Mounted Police and the Forces (35 years in one case and 
32 years in the other). However, they were allowed to retain the annuities which 
had been paid to them under the Royal Canadian Mounted Police Superannuation Act 
during their nine years of temporary service, amounting to $15,092 and $12,048 respec- 
tively. Thus they will eventually have received two pension benefits for the same period 
of service. 

We have been informed that, in the opinion of the legal officers of the Department, 
the action taken conforms to the provisions of the Canadian Forces Superannuation Act. 
If this is so, we are of the opinion that consideration should be given to amending the 
Act. 

71. Unemployment Assistance. Under the Unemployment Assistance Act, 1956, c. 
26, the federal government contributes to the Provinces and Territories 50% of the cost 
of providing financial assistance to persons unemployed and in need. 



.<2 AUIUTOH GBNBRAL'S RBPORT 

In paragraph S4 of last year's Report the Audit Office opinion was repeated that 
the Unemployment Assistance Act administered by the Department of National Health 
and Welfare includes ambiguities which have resulted in varying interpretations, and 
that the text merits further consideration. Our examinations during the year under 
review confirmed our opinion. Possible changes in the legislation, and the use of regula- 
tions, mentioned in last year's Report as being under study by the Department, are still 
being actively considered. 

s to province OF QUEBEC. — In Quebec the final adjustments in respect 
of overpayments referred to in our 1962 Report, which related to the period from July 1, 
1958 to December 31, 1961, are still under consideration. The Department has agreed to 
accept Quebec welfare agencies as agents of the Province, and their records of persons 
assisted as the Province's records within the meaning of section 6 of the Agreement. 

The arrangement first reported in 1961 whereby the Audit Services Branch of the 
Office of the Comptroller of the Treasury has been participating with the Provincial 
Auditor of Quebec in a joint audit of the accounts received by the Province from homes 
for special care and welfare agencies continues. The practice followed in other provinces 
whereby the provincial auditor's examination of claims and certification in accordance 
with the agreement precede separate examinations made on behalf of the federal gov- 
ernment will, we understand, be followed now that the joint audit has been completed 
to December 31, 1961. 

work for relief. — Although our examinations have not revealed further instances 
where recipients had been required to work in return for assistance given them, a number 
of municipalities continue to advocate this. The provinces have not acceded to these 
representations although Prince Edward Island provides in its Provincial Home for the 
Aged Act that inmates of the Home who are capable of working may be required to 
work in and about the Home. 

supplemental allowances in British Columbia. — Reference was made in our 1961 
and 1962 Reports to the Department having agreed that supplemental allowances 
normally excluded under section 4(2) of the Act could be regarded as additional relief 
payments in accordance with section 4(3) (b) of the Act and section 8 of the Agreement 
when the amounts are based on individual budgetary assessments of need in which 
basic expenditures as well as income are considered. In those Reports we expressed 
doubt about the way in which British Columbia had made such budgetary assessme 
of need and in the 1962 Report we mentioned that overpayments estimated at SI 11, 400 
had been recovered. However, during the year under review the Province objected to this 
estimate and it was agreed that a new calculation of the overpayments be made. At the 
year-end the recalculation of the overpayments had not been completed. 

We also drew attention last year to the use in British Columbia of two different 
scales of maximum basic assistance, the more generous one being for those eligible for 
supplemental allowances. This discriminates against applicants not entitled to supple- 
mental allowances, that is those under 65 and those over 65 who have not been residents 






AUDITOR GENERAL'S REPORT 43 

of the Province for three years. We expressed doubt as to the propriety of maintaining 
the three-year residence requirement and suggested that uniform standards of assistance 
should be applied if supplemental allowances are to be considered shareable under the 
Unemployment Assistance Act. The situation remains unchanged. 

inconsistencies in comforts allowance. — In an earlier Report we expressed the 
opinion that sections 4(2) (6) and 4(3) (6) of the Unemployment Assistance Act, taken 
together, appear to require that the full amount of a recipient's income be offset against 
the calculated cost of meeting his needs to arrive at the amount of unemployment assist- 
ance that is shareable under the Act. It is an established principle that unemployment 
assistance is to be based on need and in the case of a recipient with some income, is only 
intended to supply the additional amount required so that his income plus unemploy- 
ment assistance will enable him to meet his needs. 

The use of a portion of a recipient's income to meet his need for comforts has been 
accepted because this is, in effect, the same as providing a like amount for comforts in 
the unemployment assistance granted. However, our examinations have disclosed that 
in homes for special care in some provinces the amount of the comforts allowances to 
inmates seemed to depend not on the inmates' need but rather on whether or not they 
had some personal income. Thus, if an inmate were in receipt of Old Age Assistance or 
Old Age Security payments, he would be allowed $15 per month, whereas if he were 
dependent entirely on unemployment assistance his comforts allowance would only be 
$5 per month. The effect of this arbitrary practice is not only to discriminate on the 
basis of the economic status of the recipient but in some cases it leads to the building up 
of individual trust account balances from the unspent proceeds of these allowances which 
may be used to cover expenses excluded from unemployment assistance costs by section 
4(2) (d) of the Act. An additional effect, of course, is to increase the federal government's 
share of the cost of the Unemployment Assistance program. 

mothers' allowances. — The Unemployment Assistance Act and the statutory 
agreement form provide for the exclusion of recipients of mothers' allowances (pro- 
vincial allowances designed to assist mothers whose families have been deprived of the 
wage earner). In last year's Report we reviewed the mergers of mothers' allowances with 
general welfare assistance and the. provision in the agreement for compensating deduc- 
tions to be made when determining unemployment assistance costs. The artificial nature 
of some of these mergers was also drawn to attention. 

In the current year the Province of Ontario established a new class of assistance 
called Assistance to Dependent Fathers comprising all the former mothers' allowance 
cases involving dependent fathers. These cases were then transferred from the mothers' 
allowance program to general welfare assistance, the Province thus being able to recover 
a substantial portion of the cost from the federal government under the Unemployment 
Assistance Act. Although the merger of dependent fathers' cases with the general social 
assistance caseload has involved essentially only a change in name, the Department of 
National Health and Welfare considers the exclusion in the Act and Agreement applies 
only to assistance payments called "mothers' allowances" and has therefore been allowing 



U AUDITOR GENERALS REPORT 

the dependent fathers' cases. It is interesting to note that in over half of these cases, the 
stance paid is only in respect of their wives and children. Among this group are 
fathers who arc inmates of mental hospitals and tuberculosis sanatoria and who are 
thereby excluded from receipt of unemployment assistance by virtue of section 4(2) (a) 
of the Unemployment Assistance Act. 

educational COSTS. — l'.xaniinat ions in Alberta and Saskatchewan reveal that claims 
sometimes include the cost of tuition, books and living allowances for persons training 
as teachers, nurses, fanners and barbers, together with allowances for their dependents. 
In addition, regulations under Ontario's General Welfare Assistance Act provide for 
rehabilitation services, including vocational training the cost of which, it is understood, 
has been included in the Province's Unemployment Assistance claims. A similar problem 
also arises in the Province of Quebec in connection with assistance to children aged 18 to 
Ll who are undertaking studies. It is doubtful whether costs such as the above are within 
the scope of the Unemployment Assistance Act and Agreement. 

interpretation of "unemployed". — In our 1961 Report we noted that the word 
"unemployed" as used in the Act was considered to include such persons as mental defec- 
tives and paraplegics when, even in its broadest sense, the term would normally be 
expected to include only persons who have been, are or will be capable of employment. 

A related question is to what extent may an applicant be employed and still be 
considered unemployed for purposes of the Act. By and large, assistance to persons 
employed full time is excluded even though their earnings are insufficient to meet their 
needs. On the other hand a person who works only casually is considered to be unem- 
ployed and may be assisted under the Act if his income is insufficient to meet his needs. 

However, problems arise in determining whether persons engaged in certain types of 
employment, for example employees who regularly work half days, taxi drivers, house- 
keepers, woodsmen and own account workers, are unemployed. In addition, there is a 
risk that unemployment assistance to such persons may be used to subsidize low wages 
or to tide over the proprietor of a new business until the enterprise becomes profitable. 
In our opinion a clarification of the term 'unemployed', possibly by definition in the Act, 
is highly desirable. 

stukxotiiening administrative control. — Last year we referred to the Depart- 
ment's difficulties in the administration of the Act and suggested that it assemble its own 
internal audit group to take responsibility for the verification of unemployment assistance 
costs claimed by the provinces. This suggestion has been accepted and the necessary 
additional staff is being recruited. The Department plans to co-ordinate the new staff 
with its examiners of categorical allowances to obtain a comprehensive continuous review 
of provincial welfare administration as it affects the federal-provincial agreements in 
the welfare field. This strengthening of the Department's review of claims and control 
procedures should reduce its difficulties in administering this complex program. 

In paragraph 74 of our 1961 Report it was suggested that because of the relationship 
between the Unemployment Assistance Act and other federal social assistance programs, 



AUDITOR GENERAL'S REPORT 45 

consideration should be given to the need for over-all co-ordination of all programs 
involving assistance to individuals to avoid overlapping and duplication and to achieve 
greater equity in the treatment of individuals as well as to reduce the cost of administra- 
tion. In our opinion steps along these lines should be taken without delay in view of the 
increasing size and complexity of welfare administration. 

72. Hospital construction grants. In paragraph 85 of last year's Report we drew 
attention to the absence of parliamentary control over hospital construction grant com- 
mitments beyond the current year, and to the substantial amount of grants awaiting 
payment at the year-end. 

In view of the fact that the hospital construction program is planned on a five-year 
basis, it seems reasonable that for effective control Parliament place a limit on the over- 
all program it is prepared to be committed to, as well as provide the funds required 
annually for the execution of the program. 

Of the $3.4 million of claims outstanding at March 31, 1963, $2.1 million were sub- 
mitted by the Province of Quebec, for completed construction in respect of approved 
projects, in excess of its share of the current year's grant, and such claims therefore could 
not have been paid even if funds had been available. The remaining $1.3 million of 
claims were from seven provinces for current year's commitments which should have 
been paid but could not because there were insufficient funds available. Although the 
annual appropriation is intended to provide for all commitments coming in course of 
payment during the year, 1962-63 was the third consecutive year in which insufficient 
funds were available to meet the federal government's obligations under the program. 

73. Indian hospitals and hospital insurance. Section 5 of the Hospital Insurance and 
Diagnostic Services Act, 1957, c. 28, requires every province to agree to make insured 
services available to all residents of the province upon uniform terms and conditions. 
When hospital insurance was discussed by the 1956-57 Special Committee on Estimates, 
and later when the relative Bill was debated in Parliament, it was made clear this would 
oblige the provinces to provide insured services for Indian as well as other residents. 

Indian and Northern Health Services of the Department of National Health and 
Welfare has been providing these services to Indians and recently the volume of general 
treatment has increased as hospital facilities previously used for tuberculous Indians 
became available for general treatment. 

The Hospital Insurance Agreement with the Province of British Columbia included 
the three Indian hospitals in the Province, in recognition of their role in providing 
general hospital care to Indians. The Province, however, has insisted that the Agreement 
is subject to an earlier understanding that the Province will only pay for care in Indian 
hospitals if no general public hospital accommodation is available. Thus, the Province 
has refused to pay Miller Bay Indian Hospital for insured services to insured residents 
when accounts are not accompanied by a certificate from the nearby Prince Rupert 
General Hospital that they had no accommodation available. While the Province may 
wish to promote the integration of Indians and the general population, financial con- 



46 AUDITOR Gl M R if. S REPORT 

siderations appear to be paramount. Under the Agreement the Province pays practically 
the full opera tint;- costs of the Prince Rupert General Hospital whether its beds are used 
or not, but for hospitalization in the Indian hospital the Province pays only for the bi 

used. 

In the calendar year 1962 the Prince Rupert General Hospital's average occupancy 
wa- 95' of its rated capacity of 88 beds, while the Miller Bay Indian Hospital's average 
occupancy was only GO^ of its rated capacity of 70 beds assigned to general care. The 
occupancy rates appear to reflect the Province's policy of using this Indian hospital to 
provide standby facilities for the general hospital. 

The 19()2-G3 Public Accounts show the operating costs of the Miller Bay Indian 
Hospital at 8733,000 and about half of this amount could be regarded as related to 
genera] care. Revenue received from the Province's hospital insurance plan, as an offset to 
the costs related to general care, amounted to only 814,000 or about 4% of the federal 
expenditure. The failure to recover a larger share of costs at the Miller Bay Indian 
Hospital is explained by the fact that (a) the Province will not pay for insured patients 
at the Indian Hospital unless accommodation is not available in the general hospital, (b) 
per diem rates set by the Province are below actual cost (and also below the correspond- 
ing rates in the Prince Rupert General Hospital), and (c) the Province deems some of 
the care given insured patients unnecessary, and will not pay for it. Thus, notwith- 
standing the fact that general care includes uninsured chronic and custodial care, it 
seems evident that Canada is bearing costs it was intended that the Province assume 
under the Hospital Insurance and Diagnostic Services Act. 

74. Improper authorization of use of a Government-owned automobile. An employee 
of the Department of National Health and Welfare took a course at a university in a 
city some 150 miles away from his home. He was granted "educational leave" pursuant to 
section 73 of the Civil Service Regulations and the Treasury Board authorized payment 
of a non-accountable allowance equal to full pay, tuition fees of $250, and actual return 
transportation expenses (which the Department had advised would be about 820). In 
addition, a subsistence allowance at the rate of $175 a month was approved, retroactively, 
after the course terminated. 

While on this leave, the employee was permitted to continue to use the Crown-owned 
automobile which had been provided for the performance of his duties. The automobile 
was used by him to travel between the university and his lodgings and to return home 
on weekends, with all running expenses being charged to the government, by means of 
credit cards, for a total of approximately 4,500 miles. 

In view of the fact that (a) the employee was permitted to use the vehicle and 
(b) it was not made clear to him that he was on leave without pay rather than on 
official duty, the Department has advised us that they will not take action to recover 
from the employee the costs resulting from the use of the vehicle (see also paragraph 93, 
"educational program costs"). As a result of our drawing this matter to the attention of 
the Department, we understand that administrative changes are being made to prevent a 
recurrence. 



AUDITOR GENERAL'S REPORT 47 

75. Reporting of remissions. In paragraph 93 of last year's Report reference was 
made to the requirements of the Financial Administration Act with regard to the report- 
ing of remissions. We expressed the opinion that section 22 of the Act in calling for "a 
statement of each remission" contemplates the inclusion of a comment giving the partic- 
ulars with respect to each remission — as was being done in the case of remissions to 
charitable, educational or other non-profit organizations. As an illustration of the inade- 
quacy of the method of listing remissions, reference was made last year in paragraph 94 
to the sales tax on oleomargarine which, by the use of the remission process, was being 
rendered inoperative in the Province of Newfoundland without this being indicated in 
the listing of remissions included in the Public Accounts. 

The Department of National Revenue took note of this observation in last year's 
Report, and remissions granted in 1962-63 are being reported in greater detail than in 
previous years, with explanations enabling the reader to determine the manner in which 
the remission prerogative was exercised. 

76. Remission of customs duty surcharges. With the object of increasing customs 
duties on various classes of imports by 5%, 10% or 15% ad valorem, the Surcharge on 
Imports Order was established by Order in Council P.C. 1962-902 of June 24, 1962. This 
Order withdrew, with respect to many tariff items, all rates of customs duties more 
favourable than those of the General Tariff and at the same time, by relying on section 
22 of the Financial Administration Act, it remitted all customs duties to the extent 
necessary to ensure that amounts of duty collected were not increased by more than 
5%, 10% or 15% ad valorem as the case might be. Subsequently, as various tariff items 
were exempted from the surcharge, this was accomplished by further remissions of duties 
to the extent necessary. 

In applying the terms of the Order, the Department of National Revenue did not 
require customs officers to calculate the full duty payable and record the amount remitted 
in each case, nor did it require that the amount of the surcharge be calculated separately. 
From the practical point of view, the application of the surcharge was thus accomplished 
with a minimum of administrative cost. However, as no record was kept of the tariff 
changes provided for by section 1 of the Surcharge on Imports Order, of the remissions 
provided for by section 2 of the Order or of the surcharge as a separate amount on each 
entry, information is not available as to the total of the additional duties payable as a 
result of section 1 of the Order, as to the amount of the duties remitted by section 2 or 
as to the exact amount of the surcharge collected. 

77. Remissions of sales tax in excess of compromise offers. Included in the remissions 
reported in the Public Accounts for 1962-63 were two cases where exceptional circum- 
stances were present. 

One of these cases involved a licensee operating as a manufacturer of restaurant 
booths, tables, etc., as a jobber selling restaurant and hotel supplies and as a general 
contractor handling renovating jobs. In the ten year period from 1948 to 1958 audits on 
six occasions by five different excise tax auditors resulted in additional assessments 
totalling only $2,593. On the last of these occasions, in July 1958, the licensee was 



48 AUDITOR GENERAL'S REPORT 

informed that his records were inadequate and that proper cost records must be main- 
tained. An audit of the transactions of the subsequent three year period resulted in an 
additional assessment of $36,823, and the excise tax auditor again reported the records 
bo be inadequate. The amount of the assessment was disputed and an alternative figure 
of SS.108 was put forward by the licensee. An attempt was made to check this figure but, 
in the meantime, all the records had been destroyed by fire. The excise tax auditor 
nevertheless re-examined the assessment and revised it downward to $18,088. The licensee 
offered a compromise settlement of $10,000 which was accepted and the Governor in 
Council remitted the balance of $8,088 plus penalty of $3,545. In the meantime a sales 
tax audit for the year ended April 30, 1962 resulted in a further assessment of $7,330, 
with the auditor once more reporting that the records were inadequate. The licensee 
again disputed the assessment and offered $4,500 in full settlement. Again, this offer was 
accepted, and the Governor in Council, in June 1963, remitted the balance of $2,830 plus 
penalty of $926. This remission will be reported in the Public Accounts, for 1963-64. 

In the second of the two cases referred to above, excise tax auditors examined the 
records of the licensee, a beverage manufacturer, on ten occasions during the period from 
1941 to 1959 and additional assessments totalling only $678 resulted. Two auditors alter- 
nated in the first nine of these examinations and a third auditor made the tenth. In 1962 
a fourth auditor made an examination of the records for the period from April 1959 to 
April 1962 which resulted in an additional assessment of $15,216 for this period. Because 
of this large additional assessment the records for the period from March 1955 to March 
1959 were re-examined and a further assessment of $23,089 for this period resulted (there 
was no re-examination of the records for the period August 1941 to February 1955). The 
licensee tendered a payment of $15,000 as a compromise settlement of the $38,305 total 
of these assessments and the Governor in Council remitted the balance of the tax of 
$23,305 plus penalties of $9,560. In the course of the investigation of the case the licensee 
took an affidavit to the effect that he had made payments to each of the first three excise 
tax auditors personally. Prior to the sales tax audit which resulted in the first of the 
large additional assessments, one of the auditors previously involved had resigned and 
another had retired. The third was suspended and subsequently dismissed. Charges were 
laid against the retired auditor but he died before the case could be heard. 

78. Payment made for houses the cost of which had previously been provided for 
through loans still outstanding. An Eskimo Loan Fund was established by Appropriation 
Act No. 3, 1953 for the purpose of making loans to individual Eskimos or groups of 
Eskimos under conditions prescribed by the Treasury Board. By March 31, 1963 out- 
standing loans amounted to $232,317 of which $52,500 had been extended to a group 
of 15 Eskimos at Frobisher Bay, N.W.T. 

The circumstances in the case of the Frobisher Bay Eskimo group are unusual. 
Early in 1962 this group incorporated as a co-operative for the express purpose of acquir- 
ing housing. Agreement was reached between the co-operative and the Department of 
Northern Affairs and National Resources that: (a) the Department would invite tenders 
for 15 prefabricated houses and place a contract after the Eskimos had signified approval; 
(6) payment would be made to the contractor by the co-operative for the total price, less 



AUDITOR GENERAL'S REPORT 49 

$15,000 for which the Department agreed to assume responsibility; and (c) in order that 
the co-operative would have sufficient funds to pay the contractor and to meet shipping 
costs, the Department would make a loan of $3,500 from the Eskimo Loan Fund to each 
of the 15 Eskimos who, in turn, would endorse his cheque for deposit to the credit of the 
co-operative. 

As agreed, the cheques, collectively amounting to $52,500, were issued to the Eskimos 
from the Loan Fund and endorsed by them to the co-operative. At this point the Depart- 
ment sought and obtained Treasury Board approval to charge the full cost of the houses 
to a departmental appropriation. In February 1963, the Department's Welfare and Indus- 
trial Division appropriation for "Construction or Acquisition of Buildings, Works, Land 
and Equipment" (Vote 95) was charged with a payment of $69,705, the f.o.b. Montreal 
cost of the houses. The loans were not, however, at the same time recalled by the 
Department. 

The loans had not been repaid as at March 31, 1963 and interest charges had raised 
the total outstanding to $53,540. Subsequent to the year-end, authority was granted to 
waive interest on each of the $3,500 loans until such time as each Eskimo occupied his 
house (it was estimated that the last of the 15 houses would be occupied by November 1, 
1963). Less than $800 had been repaid on these loans to September 15, 1963. 

79. Payment of maintenance expenses of Civil Service Recreational Association 
Centre. In last year's Report (paragraph 99) attention was drawn to financial assistance 
of approximately $25,000 extended in the form of maintenance services rendered by the 
Department of Public Works to the recreational centre operated by the Civil Service 
Recreational Association, a privately managed staff organization at Ottawa, which pro- 
vides athletic and other recreational facilities for its membership. The assistance was 
given with the concurrence of the Treasury Board, although neither the text of the 
appropriation involved nor the related Details of Services contained any reference to 
the assistance. It was pointed out last year that this was contrary to the long-standing 
policy that grants or other forms of financial assistance to non-governmental organiza- 
tions are made only from parliamentary appropriations specifically provided or clearly 
intended for such purpose. 

During the year under review the Public Works appropriation for "Maintenance 
and Operation of Public Buildings and Grounds" (Vote 75) was charged with costs of 
approximately $31,600 in respect of lighting, heating, water, and repairs and upkeep 
in connection with the Centre, while the appropriation for "Improvements Generally" 
(Vote 70) was used to meet the cost of $1,345 incurred for grounds maintenance. In 
neither instance did the text of the appropriation nor the associated Details of Services 
refer to the assistance to be thus provided. 

80. Failure to recover, or seek recovery of, cost of remedial work. The construction 
of a public building at North Bay, Ontario, to accommodate personnel of a number of 
departments was substantially completed in April 1957. Because of certain known de- 
ficiencies in the work, the final payment, to the contractor was not made until December 



50 AUDITOR GF.NF.RALS REPORT 

1957 and his security deposit was released in the following month. In the meantime, the 
premises had been progressively occupied and, during the winter of 1957-58, the district 
representative of the Department of Public Works received many complaints from the 
occupying departments. In .March 1958, he informed the contractor of 39 deficiencies 
which required correction. Of these, 34 were of a minor nature and were corrected by the 
contractor but, although over a period of four years he was repeatedly ordered to deal 
with the remaining items, he refused on the grounds that he had followed plans and 
specifications. On the other hand, the Department took the stand that the repairs were 
required because of poor workmanship or faulty materials, and the cost of the remedial 
work would undoubtedly have been withheld from the security deposit had it not been 
released prematurely. 

Early in 1962, because some of the unsatisfactory conditions had created a public 
hazard, a contract was placed with another contractor for the correction of the outstand- 
ing deficiencies. The cost of $40,156 was charged to the 1962-63 appropriation for 
"Balances required to complete any projects undertaken in previous fiscal years and for 
which no specific provision is made in the fiscal year 1962-63" (Public Works Vote 190). 

Efforts to recover the cost of the remedial work from the original contractor have 
not included recourse to legal action. 

81. Failure to recover part of dredging costs. It has long been the policy of the 
Department of Public Works to limit its participation in the cost of dredging access 
channels from private areas to main channels, to sharing the cost equally with those desir- 
ing such access, and not to accept any financial responsibility for dredging slips or berth- 
ing areas considered to be of a private nature. A departure from this policy was observed 
during the year when a payment of $45,000 was made to the City of Trois-Rivieres as a 
charge to the Public Works appropriation for "Dredging-Maintenance and Operation of 
Plant and Contract and Day Labour Works" (Vote 150). 

In October 1962 the Department of Transport requested the Department of Public 
Works to undertake dredging in the St. Maurice River in connection with the develop- 
ment of a municipal park and marina by the City of Trois-Rivieres. The former Depart- 
ment had already requested quotations for the work involved, from three dredging firms 
in the area. The Department of Public Works, in reply, referred to its policy in such 
matters and stated that it would be prepared to recommend only the sharing of the cost 
of dredging the access channel, which would mean a departmental outlay of about 
$9,000, but that it could accept no financial responsibility for the mooring basin and 
berthing area associated with the municipal park. The Department also stated that it 
could not award a contract on the basis of the bids already obtained by the Department 
of Transport because section 36 of the Public Works Act required that tenders be invited 
by public advertisement. It suggested, therefore, that the City negotiate a contract for 
the dredging, with the payment by the Department being in the form of a contribution to 
the City. 

After further representations by the Department of Transport that the Department 
of Public Works should make a contribution of $45,000 to the City to cover the full cost 






AUDITOR GENERAL'S REPORT 51 

of dredging not only the access channel but also the mooring basin and berthing area, 
the Treasury Board was approached for authority to make the contribution on this basis 
and such authority was given in January 1963. 

As well as being at variance with the policy with respect to sharing dredging costs, 
the propriety of the charge to Public Works Vote 150 is open to question because of the 
long-standing policy that financial assistance may be given to outside organizations only 
from parliamentary appropriations specifically provided, or clearly intended, for such 
assistance. 

82. Construction of ferry landing facilities for provincial government. For a number 
of years it has been the general policy of the Department of Public Works to regard the 
landing facilities at either end of a ferry service linking an intra-provincial highway as 
the exclusive responsibility of the province concerned. Two departures from this policy 
in 1962-63 attracted attention. 

In the early part of the fiscal year the Department sought Treasury Board authority 
to enter into a contract for major wharf improvements at Les Eboulements, Que. The 
Board noted that a significant part of the proposed expenditure — at least $100,000 of the 
accepted tender of $575,000 — would relate to the construction of a loading facility for 
the ferry service operating between lies aux Coudres and Les Eboulements, which is 
subsidized by the Canadian Maritime Commission. Accordingly, while the Board 
authorized the Department to enter into the construction contract, it was suggested 
that the Province of Quebec should be asked to make a capital contribution which would 
bear a direct relationship to the cost of the facilities being provided in connection with 
the ferry service. Several months later the Department informed the Board that the 
Province had shown a reluctance to participate financially in the provision of the 
improved facilities. The Board directed that in future instances of a similar nature the 
Department was to approach the province concerned at the outset and obtain an under- 
taking regarding "an appropriate financial contribution", in order that the Board might 
be "in a more favourable position to assess the merits of the planned work". 

In the second case referred to above, tenders were called in 1961 for the construction 
of terminal facilities at Matane, Quebec, for a proposed ferry service between Matane 
and Godbout. Treasury Board approval of entry into a contract was initially withheld 
because it was felt that an exception should not be made to the general policy with 
regard to facilities for intra-provincial ferry operations. Eventually, however, "since 
some commitment had been given to the private interests, on which basis they undertook 
substantial commitments related to the acquisition of a vessel and the construction of 
the Godbout terminal", the Board reluctantly approved proceeding with the project. 
They directed, however, that "the expenditure involved was definitely the limit of federal 
assistance to this service, and wished it to be made very clear that no operation subsidy 
payment would be made". The terminal facilities were completed during the year under 
review at a cost of $171,557. 

Notwithstanding the Board's previous direction as to the limits of federal assistance 
to this service, executive authority was granted in August 1963 for entry into a three-year 



B AUDITOR GENERAL'S REPORT 

agreement with the company operating the ferry, for a subsidy of $50,000 for 1963, 
$40,000 for 1964, and $30,000 for 1965, with a recapture clause for amounts earned in 
excess of $39,400 per annum. 

83. Cost of constructing additional wharf. In 1955 the Department of Public Works 
constructed a wharf at Desbiens, Quebec, at a cost of $10,828. While title to the site of 
the wharf had been acquired by the Department, control of the approach remained 
vested in the municipality, which undertook to maintain the roadway at its own expense. 
In 195S the Department was requested to provide a new wharf at Desbiens, at a location 
approximately 1000 feet distant from the structure built in 1955, because access to the 
existing wharf had been closed to the public by the municipal authorities. The Depart- 
ment was not prepared to expropriate the approach to the existing wharf because of 
local feeling, nor was it prepared to build a new wharf, and matters were allowed to 
stand until 1961. In that year, without having sought or obtained the approval of the 
Treasury Board, the Department agreed to build a new wharf at the site suggested in 
1958, provided it could obtain clear title to all the necessary properties, and by March 31, 
1963 costs of $11,808 had been incurred. In the meantime, efforts to sell the first wharf 
for its salvage value, through Crown Assets Disposal Corporation, were unsuccessful. 

84. Radar equipment acquired but not put into service. In 1958-59, airway and 
airport surveillance radar systems were placed in commission at 15 Canadian airports in 
order to provide improved facilities for air traffic control. The individual installations 
required considerable construction at some airports in order to provide accommodation 
for the radar terminal equipment in the control towers, and related facilities. 

At the Lakehead Airport, due to the nature of the terrain, it was found necessary 
to install the surveillance system on a height of land about 12 nautical miles from the 
airport and to have a communication link to relay the radar information from there to 
the airport control tower. In March 1959 the Department of Transport acquired a 
microwave radar relay system at a cost of $182,000 to provide the necessary link between 
the surveillance system and the airport control tower. As space in the terminal building 
was not available to house all the airport radar equipment, it was decided to construct a 
temporary building at the remote site to accommodate some of the equipment and to 
provide a link to the airport control tower by radio circuit until such time as the 
terminal building facilities were enlarged to accommodate all the radar terminal equip- 
ment. It was regarded as impracticable to put the microwave link into service until this 
had been done. 

At March 31, 1963, four years after acquisition of the microwave radar relay 
system, it was still in storage, and the preparation of working drawings and tender 
documents for enlarged terminal facilities had not yet reached the final stage. It would 
now appear that at least five years will have elapsed between the time of acquisition of 
the microwave system and its being put into service. Thus, equipment valued at $182,000 
and of a kind subject to rapid technological improvement will have remained in storage 
for five years because of failure to provide necessary equipment accommodation. 



AUDITOR GENERAL'S REPORT 53 

85. Expenditure arising out of accident resulting from improper installation of air 
traffic control equipment. On March 26, 1962 a Trans-Canada Air Lines airplane, while 
taxiing at the Montreal International Airport, came into contact with a precision 
approach radar reflector which had been recently installed close to the edge of the holding 
area beside the runway. Subsequently the airline presented a claim to the Department 
of Transport for costs of $82,552 "attributable to engine ingestion of temporary P.A.R. 
aluminum reflector and post". Payment of the claim was authorized by the Governor in 
Council on an ex gratia basis, the charge being to the Transport appropriation for 
"Airport and Other Ground Services — Operation and Maintenance" (Vote 145). 

An investigation by the Department revealed that the reflector giving rise to the 
accident had, with other reflectors, been installed at a distance of only 25 feet from the 
side of the runway instead of at the distance of 50 feet recommended by the equipment 
manufacturer and approved by departmental headquarters. Furthermore, the poles 
supporting the reflectors had been temporarily installed with their bases above the 
prescribed height because the surface of the ground was frozen at the time. The accident 
occurred because the outboard engines of the aircraft involved in the accident, which 
were lower than the reflectors, projected about 33 feet from the side of the runway 
when its wheels were on the edge of the paved area. 

86. Montreal International Airport construction costs. In 1953 preliminary planning 
by the Department of Transport indicated that expenditure of about $6 million would 
be required for the construction of an air terminal building and a separate "finger" 
building at the Montreal International Airport. The concept of a separate "finger" 
building was abandoned in the face of adverse criticism by prospective commercial users 
of the facilities, some of whom also criticized the inadequacy of space provided for 
their use. 

In July 1954 two firms of architects were engaged to work jointly on the project and 
were instructed to have specifications for the new terminal building ready for tender by 
March 1955, considerably in advance of what would have been expected normally in 
connection with a project of this magnitude. The revised plans prepared by the architects 
differed materially from those originally contemplated and the cost of the project was 
estimated at $11 million, including $1.5 million for the "fingers" which were now to be 
extensions of the terminal building itself. 

In order that the work could proceed with a minimum of delay, and notwithstanding 
the fact that final decisions had not been reached with regard to a number of important 
matters, it was decided that the work could be divided into a number of stages and 
separate contracts awarded for each stage. It was felt that this approach, rather than 
having a contract for the entire project placed with one contractor who would sub- 
contract for a number of construction stages, would enable the architects to work on the 
detailed specifications for one stage while work was proceeding on the previous one. It 
was also hoped that a saving could be effected through the placing of individual contracts. 
The contract for the first construction stage was authorized in August 1955; and the 
terminal building was substantially completed and opened to the public in December 1960. 



54 AUDITOR GBNER l/.'.V REPORT 

Total costs actually incurred in the construction of the terminal building and 
related facilities had amounted to $30,591,000 at March 31, 1963, as follows: 

Terminal building $22,348,000 

Fingers and aeroquay 6,048,000 

Furnishings, etc 676,000 

oitectfl' fees and expenses 1,519,000 



$30,591,000 



Reasons underlying these heavy costs, far in excess of those estimated, have been 
reviewed by the Department with us, the principal reasons advanced being: 

(a) the undertaking was the first of such magnitude undertaken by the Department and 
raised a number of problems which were either under-estimated or .unforeseen in the 
planning stage because of the size and complexity of the project; 

(6) it was considered necessary to proceed with the various stages of the work as rapidly 
as possible without, in some cases, having complete plans available (a result was that 
prices covering much of the work had to be obtained through negotiation with the 
contractors already on the job, rather than through tendering) ; 

(c) construction took phice during the period when the first major thinking was going into 
the planning of terminal buildings to be used by jet aircraft, and this was responsible 
for a great many changes in the planning as work proceeded, making advance cost 
estimates unrealistic; and 

(d) the architects fell behind schedule in their preparation of plans. 

87. Catering contract, Montreal International Airport. In March 1960 the Depart- 
ment of Transport invited public tenders for the rental of the restaurant and other 
dining facilities in the new terminal building at the Montreal International Airport, on 
the basis of a percentage of gross revenue from sales of food and beverages. Three of 
the bids received were given serious consideration, two being from large, well-established 
concerns in the catering field. The third, which contained a slightly better offer than the 
other two, came from a group of Montreal citizens with varied backgrounds, including 
some experience in restaurant operations, w-fio proposed to incorporate a company to 
operate the facilities if they were successful in obtaining the concessions. 

Executive approval was given in August 1960 for entry into an agreement with this 
group but only on condition that it, at its own expense, furnish, equip, and decorate the 
cocktail lounge and bar and spend a minimum of $350,000 as the initial cost of furnishing, 
equipping and decorating the several concessions. The condition was agreed to by the 
group. 

The group thereupon formed themselves into a limited company and signed a lease 
indenture dated January 31. 1961. The indenture contained the condition referred to 
previously and in addition required that the specified amount of at least §350,000 to be 
spent on furnishings, etc., was to be evidenced by certified copies of receipted vouchers 



AUDITOR GENERAL'S REPORT 55 

furnished to the Department within 60 days of the effective date of the lease. This 
requirement was not met and the Department later explained to the Audit Office that 
a general awareness of what had been installed made it seem unnecessary to invoke the 
relevant clause. 

Financial statements produced by the company to the Department in May 1961, 
giving the financial position at the date of the lease indenture, revealed that the com- 
pany was proceeding to make commitments for expenditures called for in the lease, but 
it was also revealed that the company was under-capitalized in that only $150,000 equity 
capital had been introduced. Interim financial statements provided to the Department 
by the lessee as at July 31, 1961, i.e., after six months operation under the lease, revealed 
that: 

(a) no further equity capital had been introduced, 

(b) $73,000 had been borrowed by the company, 

(c) there was a deficiency of working capital, and 

(d) furniture and fixtures had been largely obtained on credit. 

Although partially reorganized in July 1961, the financial position of the company 
continued to deteriorate. Operations for the first eight months to September 30, 1961 
resulted in a loss which was in excess of the paid-in equity capital. Financial statements 
prepared as at June 30, 1962 revealed that further losses had occurred without any addi- 
tional equity capital having been introduced. 

On October 1, 1961 the company ceased to make the rental payments to the 
Department called for by the lease indenture and these were not resumed until almost a 
year later. Following a general assessment of the situation in February 1962, the Depart- 
ment decided that a proposal made by the company for a major re- writing of the lease and 
a substantial reduction in the operation of the facilities was unacceptable and that the 
only solution to the situation was to seek a successor by direct negotiation. The Depart- 
ment therefore invited proposals from the two well established catering concerns whose 
bids had also received consideration in March 1960. One of these concerns showed interest 
in taking over the catering company provided that "the Department would make some 
adjustments both with respect to the financial crisis which had developed and the fee 
formula for continued operation of the restaurant". With the Department's approval the 
concern entered into discussions with the directors of the company holding the catering 
contract. However, before much progress could be made by this concern, the directors and 
principal shareholders of the company holding the catering contract suddenly sold out 
their interest in the company to a fresh group of local citizens in October 1962. 

In November 1962, after current rental payments had been resumed, but without 
reducing the backlog of indebtedness, the new directors of the company holding the 
catering contract came forward with a proposal that the basis for the payment of rental 
in so far as food sales were concerned be substantially adjusted downward and made 
retroactive to February 1, 1961, the effective date of the basic lease indenture. 



56 AUDITOR GENERALS REPORT 

Notwithstanding the unsatisfactory performance of the lessee company over the 
two years of its operation, the Treasury Board early in 1963 approved the financial 
reductions sought by the new directors and the Department was authorized to amend 
the lease indenture retroactively on that basis. Although it is obvious that this will result 
in a substantial reduction of the company's unpaid indebtedness to the Department, 
which amounted to §167,400 at March 31, 1963, the actual amount of the reduction has 
not yet been finally determined by officers of the Department. 

88. Wear Veterans Allowances. In the 1962 Report (paragraph 103) attention was 
directed to the application of the War Veterans Allowance Act and Regulations. We 
reported the following anomalies: (i) that mortgages receivable and agreements for 
sale were not considered as personal property, thus allowing awards of allowances to 
many applicants who would not qualify if their assets were in another form; and (ii) that 
proceeds from the sale of a recipient's home were not considered to be personal property 
for a year after the date of sale, even when a new residence was purchased shortly after 
his former home was sold, thus allowing the continuation of payment of allowances in 
cases where the recipient was in possession of assets in excess of those permitted by 
the Act. We reported also that action was seldom recommended by the War Veterans 
Allowance Board to enforce the provisions of the Act and Regulations relating to 
penalties or imprisonment, or both, for making false or misleading statements or failing 
to disclose pertinent information which might have a bearing on the amount of an 
award. In this regard we pointed out that no legal action had been taken in 57 cases 
(there were 30 additional cases in 1962-63) referred to the Board by this Office. Our con- 
cluding comment in respect of this situation was: "unless the Act is amended to provide 
heavier penalties which the Board is prepared to enforce, deliberate deceptions of this 
type can be expected to continue". 

These comments are reiterated as the unsatisfactory situation continues. In fact, 
there has been an increase in the number of persons and amounts affected because of 
an amendment (1962, c. 11) to the Civilian War Pensions and Allowances Act which 
provides for payment of the same allowances to certain civilians. 

Another problem encountered concerns income of children where children are 
involved in awards. The Table of Allowances (Schedule A of the Act) sets out in 
column III thereof the maximum total annual incomes, including allowances, which 
the various classes of recipients are permitted to receive. The Board has directed that 
income from any source that is received by a W.V.A. recipient for or on behalf of 
dependent children does not constitute part of the recipient's income, and that income 
of children is not to be considered a factor in making awards to any recipient, other 
than an orphan recipient. The directive stems from an opinion to this effect given by 
the Director of Legal Services of the Department of Veterans Affairs based on the fact 
that where the spouse is recognized as the dependent (Classes 2 and 4). column III of 
the schedule shows the total permissive income followed by the words "total for veteran 
and spouse" whereas where the child is recognized as the dependent (Class 3) the 
amount appears without restrictive or qualifying wording; thus, for this class, it was 






AUDITOR GENERAL'S REPORT 57 

concluded, no income other than that of the recipient was intended to apply. However, 
it is the Audit Office view that, since an increased allowance for maintenance is payable 
because of the child, income in respect of the child (excluding income exempted by the 
Act) should be taken into account when determining the amount of war veterans 
allowance to be awarded. 

Moreover, section 6 of the Act specifically exempts family allowances, additional 
allowances payable under the Pension Act in respect of children, mothers' allowances 
and provincial and municipal relief to dependent children; therefore, by implication it 
would appear that all other income in respect of children is intended to be assessable. 

On the basis of a clarification given to the Board by the Director of Legal Services 
as to the distinction between money paid to a recipient because that recipient has a 
child (income of the recipient) and money paid to a recipient on behalf of a child 
(income of the child) the Board, when granting an allowance to an individual receiving 
unemployment assistance has on occasion exempted a portion of that income on the 
grounds that it represents income of his child. Similarly, instances have been noted 
where a portion of a workmen's compensation award to a war veterans allowance recipient 
with a child has been exempted because it was considered by the Board to be income of 
the child. The presence of dependent children is of course a factor governing the amount 
of an allowance given under the Unemployment Assistance Act or an award made under 
workmen's compensation legislation. However, it does not follow that a portion of the 
allowance or award can be considered income of the children. Indeed, in the case of social 
assistance, payments of assistance that can be regarded as income of children are not 
acceptable as shareable under the Unemployment Assistance Act. Obviously, it is 
illogical to regard the portion of an unemployment assistance payment to the head of a 
household, which relates to his dependent children, as income of the children for purposes 
of war veterans allowance and as income of the head of the household for purposes of 
unemployment assistance. Therefore, if in law this portion is income of children, it has 
been illegally shared by the federal government under the Unemployment Assistance 
Act; if not, its exemption as income of a recipient of war veterans allowance is wrong. 

Last year we reported that by an amendment to the Regulations, which declared 
that $10 of the old age security pension ($20 in the case of a married couple each receiv- 
ing the pension) was to be considered exempt income, there was a departure from the 
long established principle that old age pensions and war veterans allowances were 
parallel payments and that the exemption, in effect, increased the amounts of allowances 
and annual income ceilings of a group of war veterans allowance recipients whose incomes 
had by statute been adjusted substantially just eight months previously. 

The increase of $10 in the old age pension which came into effect on October 1, 1963 
has, like that granted on February 1, 1962, been declared by regulation to be exempt 
income for purposes of the War Veterans Allowance Act, thus further augmenting the 
income of recipients thereunder who are over 70 years of age. An item is included in 
Supplementary Estimates (D), 1963-64 (Vote Ahd — Veterans Affairs) which provides 
that, effective October 1, 1963, for purposes of the War Veterans Allowance Act and 
Part XI of the Civilian War Pensions and Allowances Act, the old age pension of $75 



58 AUDITOR GENERAL'S REPORT 

per month shall he deemed to be $55 per month. The effect of this item, if enacted, will 
be to give parliamentary sanction to the exemption of these increases. 

89. Civilian war pensions and allowances. Reference was made in the previous 
paragraph to Part XI, Civilian War Pensions and Allowances Act which came into effect 
last year. This legislation makes available to designated groups of civilians associate*! with 
the war effort the same allowances that are available to war veterans. It is pointed out 
thai the Old Age Assistance Act, the Blind Persons Act and the Disabled Persons Act 
contain provisions that no payment may be made to a recipient of an allowance under 
the War Veterans Allowance Act but do not prohibit payments to recipients of civilian 
war allowances. 

90. Veterans' hospitals and institutions. In last year's Report (paragraph 104) we 
pointed out that hospitals and institutions operated by the Department of Veterans 
Affairs, originally established to take care of veterans requiring treatment for war service 
disabilities, were presently being occupied to a considerable extent by domiciliary care 
cases and war veterans allowance recipients. These two classes respectively accounted 
for 40% and 21% of the total patient days in these hospitals and institutions in 1961-62, 
whereas disability pensioners accounted for only 179? • We reported that during 1961-62 
the average cost of maintaining patients in active treatment hospitals was $ 18.76 per 
day compared with $9.63 per day in non-active treatment centres, and we also referred to 
the fact that the cost per in-patient day of operating departmental hospitals and 
institutions had risen by 44.4% in the five-year period from 1956-57 to 1961-62. We 
concluded our comments with the suggestion that reappraisal of the Department's role 
in the operation of hospitals seems desirable in view of: 

(a) the declining numbers of pensionable disability cases being cared for; 

(6) the rising cost of operating hospitals; 

(c) the increasing use of expensive active treatment facilities for housing domiciliary care 
cases; and 

(d) the introduction of provincial hospital insurance plans under which most of the War 
Veterans Allowance recipients are insured. 

In 1962-63 the proportion of patient-days accounted for by domiciliary care cases 
and war veterans allowance recipients rose slightly to 41% and 22% respectively, while 
that for disability pensioners remained at 17%. The cost of operating departmental 
hospitals and institutions was $49,884,000 compared with $46,771,000 in 1961-62. The 
figure for 1962-63, however, included $2,717,000 for the cost of medical services provided 
to the hospitals by part-time doctors, an expense incurred but not allocated to hospital 
operations in previous years. On a comparative basis, therefore, the increase in the 
cost of operations in 1962-63 was $396,000 over that for the preceding year. Based on a 
total of 2,545,552 in-patient days (2,453,514 in active treatment hospitals), the average 






AUDITOR GENERAL'S REPORT 59 

cost per patient day of maintaining patients in 1962-63 was $20.21 in active treatment 
hospitals (including $1.10 for medical services of part-time doctors) compared with 
$10.88 in non-active treatment centres. Thus the situation outlined in last year's Report 
remained substantially unchanged during 1962-63. 

91. Employment of part-time doctors by Department of Veterans Affairs. In para- 
graph 106 of last year's Report attention was drawn to an administrative problem 
resulting from the extensive staffing of Department of Veterans Affairs hospitals with 
part-time doctors retained on a negotiated fee basis, with no clearly denned terms of 
employment, to complement a nucleus of full-time medical personnel employed by the 
Department. The problem related to the status of funds derived from fees for services 
provided by the medical staff to patients who had been admitted to the hospitals on a 
paying basis, and this had become of greater significance because of the growing volume 
of paying patients arising out of the broadening of the treatment regulations in recent 
years. The Department, while forbidding full-time salaried employees to participate, had 
permitted the part-time doctors to make billings for services to such patients — encouraging 
them, however, to use the proceeds for purposes that would benefit the hospitals in which 
they were employed (although at some hospitals the part-time doctors formed associations 
to bill patients and divided the proceeds among themselves and in some instances full-time 
doctors became sharing members). 

We reported last year that the Department had proposed that a solution to the 
problem might be the creation of a special fund under its control to which would be 
credited the proceeds from fees for services rendered paying patients by both the part- 
time and full-time doctors, the proceeds to be used for purposes specified by the Depart- 
ment, including the purchase of books for the hospital library and payment of expenses 
incurred by the hospital staff while attending scientific or similar meetings of benefit to 
the hospital. The Audit Office view was that, although there appeared to be merit in this 
approach in comparison with the former procedure, in that the Department would be in a 
better position to control the situation, parliamentary authority would be required for 
the establishment of the special fund as the proceeds from this source were public moneys 
and the Department's proposal would not meet the requirements of the Financial 
Administration Act regarding their disposition. Our reasons for this view were: (a) full- 
time doctors are public servants and any fees deriving from their services with the Depart- 
ment are public revenues, (6) there was no evidence that the annual negotiated fees for 
part-time doctors were to be with respect only to services rendered to patients entitled 
to free treatment, and (c) moneys collected arose from services undertaken in depart- 
mental hospitals using hospital facilities. We reported that the matter had been directed 
to the attention of the Treasury Board and that the general problem and the Depart- 
ment's proposed solution were under study by the Board. 

The Treasury Board's study resulted in the issuance of Order in Council P.C. 
1963-35/890 of June 13, 1963. This Order makes it clear that departmental payments to 
the "half-day" doctors are for services rendered to all persons admitted under the 

69960-3—5 



60 AUDITOR GENERAL'S REPORT 

provisions of the Veterans Treatment Regulations except those admitted under sections 
13, 14. 23, 24 and 25 (the paying classes of patients) and also makes available depart- 
mental facilities, without charge, to doctors employed under the Order for the treatment 
of paying patients. Thus the part-time doctors remained in the position of being able to 
bill patients under the payment sections. 

While the Order removes doubts regarding some aspects of the problem, in that it 
sanctions the use by part-time doctors of departmental facilities without charge and 
clearly defines the terms and basis of employment of the part-time doctors, it does not 
recognize the fact that there is no practical way to distinguish between the amount of 
service rendered paying patients by part-time doctors on the one hand and full-time 
doctors on the other. Services provided such patients, nominally assigned to part-time 
doctors, almost inevitably involve the services of full-time salaried practitioners. Thus, 
in effect, there is a government subsidy: either to the part-time doctor, if he bills in 
accordance with the provincial schedule of medical fees for the treatment given 
(including treatment by salaried departmental medical officers) ; or to the patient, if the 
fee billed by the "half-day" doctor is reduced to allow for services provided by salaried 
departmental officers (since this reduction would not be available to him in other 
hospitals). 

An associated administrative problem, which has existed for some time and was not 
resolved by the Order referred to above, relates to the determination of time spent in 
hospitals to arrive at the number of half-days of attendance which forms the basis of the 
departmental payment to part-time doctors. This Order, as did previous Orders, provides 
that payment for professional services rendered shall be on the basis of a fee for "each 
half-day of attendance or the equivalent thereof". The Department has, however, never 
paid fees on the basis of actual time worked, having always regarded the half-day basis 
more as an administrative device than an actual method of control. Indeed, the recent 
Order makes the keeping of time records almost impracticable since it requires that the 
time spent in the hospital be allocated between service to paying patients and service to 
patients for whom the Department is directly responsible. While payments to the 
doctors are made monthly, ostensibly on the basis of attendance or services rendered in 
the month, in practice the "half-day" doctor is engaged on the basis of an annual 
honorarium the amount of which is negotiated between the doctor and the Department 
based on the Department's estimate of the value of the services to be rendered and the 
funds available for these purposes. Thus the "half-day" payment to a doctor may not 
bear any close relationship to the time actually spent in providing the services. 

92. Awards under the Pension Act. In the 1960 Report (paragraph 72) attention 
was drawn to the difficulty in determining whether certain payments under the Pension 
Act, particularly those in respect of discretionary and compassionate awards and awards 
to persons in a dependent condition, are in conformity with the Act, and also to certain 
apparent inconsistencies in the Act. In the 1962 Report (paragraph 107) we quoted the 
recommendations made by the Standing Committee on Public Accounts, in its Fifth 
Report 1961, and reported the reaction thereto of the Canadian Pension Commission. We 



AUDITOR GENERAL'S REPORT 61 

then suggested that consideration be given to amending the legislation with a view to 
eliminating the inconsistencies. Attention is now drawn to two cases noted during the 
year under review which further illustrate the inconsistencies arising under this 
legislation. 

With respect to persons in a "dependent condition" but in possession of large 
amounts of personal property, testimony before the Public Accounts Committee in 1961 
indicated a change in policy respecting assets and, in fact, a committee set up by the 
Commission to consider the operation of section 38 of the Act had decided that persons 
in possession of assets in excess of $6,000 (exclusive of a personally-owned home) were 
not to be considered as being in a "dependent condition". While this purportedly became 
the policy of the Commission, a review by the Audit Office revealed that it was not 
uniformly applied and a March 1962 award is cited by way of illustration. A mother 
applied for a "dependent parent award" under section 38(3) of the Act with the 
circumstances reported by the departmental investigator to be: that her soldier son, 
before his death in 1945, had assigned $20 per month of his pay to her; that she was not 
employed and had exhausted her unemployment insurance benefits; that she had no 
income, other than free room and board from her daughter and son-in-law ; and that she 
had expenses of $45 monthly. Also reported, however, was the fact that she had recently 
sold her home and turned over to her son-in-law $19,500 as an interest-free loan with 
no repayment terms set forth. Although such an amount, invested in a Government 
annuity, would have yielded her approximately $130 monthly — more than the maximum 
prescribed by the Act — the Commission approved an award of $50 monthly. 

In the second case, a pension award appears to run counter to sections 40(1) and 
45(2) of the Pension Act. Section 40(1) provides that no person shall be awarded more 
than one pension in respect of death and section 45(2) provides that reinstatement of a 
pension which has been discontinued because of remarriage may only take place if death 
of the husband occurred within five years of the date of remarriage. A "widowed mother" 
was awarded a "dependent parent pension" under the provisions of section 38(3) of the 
Act in 1944. In 1946 she remarried and, under the provisions of section 45(1), the award 
was discontinued. After 13 years of this marriage the husband died and the widow 
applied for reinstatement of the pension but was informed that under the provisions of 
section 45(2) this was prohibited. Further representations were made and, after recon- 
sideration by the Commission, the following decision was recorded: 

"It was agreed that a woman who has lost her right to pension by virtue of the provisions 

of section 45(2) may apply in respect of another child under section 38. Mrs 

lost two sons in the services, and hence she is now entitled to apply for pension under 
section 38 in respect of the second son." 

She was now considered to be the "widowed mother" dependent of the second son and 
another award was made effective September 1, 1960 and, although the recipient returned 
to employment in October 1961, the award continues in effect at the rate of $100 monthly. 
It is not clear to us if decisions such as those cited above are in accord with the 
intent of Parliament. 

69960-3— 5i 



a AUDITOR (,l SER IL'S 8 B PORT 

93. Educational program costs. Reference was made in last year's Report (paragraph 
108) as well as in the 1961 Report (paragraph 82) to the costs of educational leave 
granted under the provisions of the Civil Service Regulations then in effect, and the 
view was expressed that the inclusion of such costs with salaries and expenses of employees 
on duty in the various departments was not conducive to effective parliamentary control 
Over the expenditure. 

The Regulations made under authority of the new Civil Service Aet which came 
into force on April 1. 1962 make no provision for the payment of salary during periods of 
educational Leave, but provide that a deputy head may grant leave without pay for not 
longer than three years to an employee for educational purposes related to the needs 
of the department. 

Pending a review and clarification of the government's policy on educational leave 
with full or partial pay the Treasury Board, in July 1962, directed that departments 
should grant the employees concerned leave without pay to attend university pursuant 
to the Civil Service Regulations, and that where the deputy head is of the opinion that 
an employee who has been granted such leave without pay warrants some assistance from 
public funds during training, submissions indicating the reasons why financial assistance 
is warranted and requesting payment of allowances in lieu of full or partial salary should 
be submitted to the Treasury Board. An instance where a recipient of "educational 
leave", who had been granted such an allowance, was under the mistaken impression that 
he was on official duty, is given in paragraph 74. 

As in previous years, the cost of financial assistance to persons on educational leave, 
in the form of allowances in lieu of salary, living allowances, tuition fees, book allowances, 
and travelling expenses was included with the cost of salaries and expenses of employees 
on duty in the various departments, and the accounts do not show the cost of the 
educational program as such. We discussed this matter with officers of the Department 
of Finance who informed us that they propose to give consideration to it with a view to 
showing educational program costs separately in the Public Accounts. 

94. Overpayments of salary. Rates of pay for the civil service are established under 
the authority of sections 11 and 12 of the Civil Service Act, which read: 

"11. The Governor in Council, after the Commission has had an opportunity of con- 
sidering the matter and after considering any recommendations made by the Commission, 
shall 

(a) establish rates of pay for each grade; and 

(b) establish the allowances thai may be paid in addition to pay. 

"12. The rates of pay for grades shall consist of minimum rates, maximum rates and 
one or more intermediate rates, or such other rates as may in any special cases be 
appropriate." 

The Treasury Board, acting for the Governor in Council, by T.B. 598360 of July 26, 
1962 established a rate of pay for an individual employee in excess of the authorized 



AUDITOR GENERAL'S REPORT 63 

rates for the employee's grade, with effect from January 1, 1961. This conflicted with a 
ruling given by the Minister of Justice in 1929 to the effect that the Governor in Council 
had no power under the old Civil Service Act to approve of rates of compensation which 
would raise the salaries of a few persons in a class; in other words, the class was to be 
dealt with as a whole if at all. As the new Civil Service Act had come into force on 
April 1, 1962, the question was again referred to the Department of Justice and the 
Deputy Attorney General expressed the opinion on June 7, 1963 that sections 11 and 12 
of the present Act do not authorize a rate of pay to be established for a particular person 
or employee in a grade, or in respect of a particular position in a grade, in excess of the 
rates established for that grade. 

A copy of this opinion was sent to the Central Pay Office on June 17, 1963 (the 
Department of Finance and the Civil Service Commission were advised by the Depart- 
ment of Justice) but the employee was still receiving excess salary in October 1963. 

Copies of the Deputy Attorney General's opinion were sent to the Secretary of the 
Treasury Board and to the Comptroller of the Treasury on August 12, 1963, in con- 
nection with a Treasury Board Minute of May 9, 1963 which established special rates of 
pay for three grades in the class "Collector, Customs and Excise", and directed that pay- 
ment at the special rates be made to certain employees in these grades. The employees 
concerned were still being paid at the special rates in October 1963. 

95. Granting of sick leave to employees prior to retirement. An opinion was given 
by the Deputy Minister of Justice in 1930 to the effect that, since sick leave is granted 
for the purpose of enabling an employee to resume his duties in the public service, it 
could not properly be granted to an employee if his department had information that he 
would not be able, or did not intend, to return to duty at the termination of such leave. 

The opinion expressed in 1930 stood until 1963. A case was observed of an employee 
who had gone on sick leave in December 1961 and was being permitted to remain in that 
status until the normal retirement date in June 1963, although the employing depart- 
ment had received a medical opinion late in 1962 that the employee would never recover 
sufficiently to return to duty. When the matter was raised with the Deputy Minister of 
Justice, he pointed to the provision of section 47 of the Regulations made in accordance 
with the Civil Service Act, 1961, c. 57, which permits a deputy head who is satisfied that 
an employee is unable to perform the duties of his position because of sickness or injury 
to grant leave of absence with pay "to the extent that such leave has been earned by 
that employee in accordance with the provisions of the Regulations". The Deputy 
Minister gave the following as his opinion : 

"There is nothing in the present Act or Regulations to prevent a deputy head from 
exercising his discretion by granting an employee such sick leave as he or she has accumu- 
lated, where it appears that the employee may not in fact, for reasons of health, be able 
to return to his or her duties in the Civil Service. Of course, if the employee does not 
intend to return to such duties, even if restored to health, that is a fact that ought to be 
taken into consideration by the deputy head in deciding whether or not to exercise his 
discretion in favour of granting leave." 



64 AUDITOR GENERAL'S REPORT 

In June 1963 the Audit Office informed both the Chairman of the Civil Service 
Commission and the Secretary of the Treasury Board of the opinion expressed by the 
Deputy Minister of Justice and each was asked if the opinion conformed to his under- 
standing of the policy intended to be applied. The former replied that it was the inten- 
tion of the Commission to examine the desirability of continuing the practice which 
had been followed for many years and that if it were concluded that this should be the 
case, consideration would be given to the most appropriate means of achieving it. The 
Secretary of the Treasury Board informed us that the Board had expected that the 
provisions of the Civil Service Regulations which had remained unchanged when the 
present regulations became effective on April 1, 1962 (no change was involved in the 
discretionary aspect of sick leave) would continue to be interpreted and administered 
as they had before. He also stated that the Board expected that the discretionary feature 
of sick leave would be applied in such a way "as to avoid conflict with the disability 
allowance provision of the Public Service Superannuation Act". 

96. Identical tenders. In Paragraph 114 of last year's Report (and in paragraph 77 
of the 1961 Report) reference was made to identical bids received by the Department 
of Public Works for the supply of incandescent lamps and fluorescent tubes to meet the 
needs of various federal buildings throughout Canada. Last year, after commenting on 
other cases of identical tenders which had also been observed in our examination of 
departmental records during the year then under review, it was stated that we had sug- 
gested to officers of the Combines Branch that it might be desirable were all identical 
tenders received by government departments. Crown corporations and other agencies to 
be listed each year by the Combines Branch in the annual report made by the Director 
of Investigation and Research to the Minister of Justice under section 44 of the Com- 
bines Investigation Act. 

Following the tabling of my 1962 Report, the Director informed us that he did not 
feel that he would be justified in accepting this suggestion. His view was that where 
certain economic facts exist, such as "a relatively small number of sellers and a homo- 
geneous product", identical tenders or prices of themselves are not sufficient evidence of 
collusion to warrant commencing an inquiry, and he felt that the publication of identical 
tenders received by departments and agencies of the Crown might lead to an assumption 
on the part of the public that they were to be regarded with suspicion, and were pub- 
lished because they raised some serious question as to their legality under the Combines 
Investigation Act. He was accordingly unwilling to take the initiative in providing details 
which might give rise to such an inference and felt that the adoption of a policy of 
publishing identical tenders in some form would be a matter for the government rather 
than the Director to decide. 

Since the close of the year under review, the Treasury Board has expressed concern 
to departments that equally low bids in respect of a number of products frequently come 
to its attention and has indicated an intent to give further consideration to the situation. 
On November 14, 1963 the Board decided that a uniform policy should be established and 



AUDITOR GENERAL'S REPORT 65 

to that end directed that, in future, when identical bids are received, all proposed con- 
tracts, regardless of amount, should be referred to the Board for selection of the con- 
tractor. The Board stated that the only products which are exempt from this procedure 
are milk products where prices are controlled by provincial authorities. 

97. Losses reported in the Public Accounts. Section 98 of the Financial Administra- 
tion Act directs that "every payment out of the Public Officers Guarantee Account and 
the amount of every loss suffered by Her Majesty by reason of defalcations or other 
fraudulent acts or omissions of a public officer, together with a statement of the circum- 
stances, shall be reported annually in the Public Accounts". 

The statements of losses included in the Public Accounts for 1962-63 were examined 
and it was ascertained that every loss during the year, which had been observed in the 
audit as being of a nature requiring to be reported in the Public Accounts in accordance 
with the foregoing direction, had been included in the listings. Losses in departments 
other than the Post Office numbered 26 and amounted to $136,116. Of these, 13 involving 
$88,335 were recovered in full during the year, and partial recoveries of $4,932 were 
obtained in other cases. Losses suffered by the Post Office Department numbered 141 and 
amounted to $75,460. Of these, 107 to a total of $44,270 were recovered in full and partial 
recoveries totalled $12,007. 

98. Non-productive payments. Paragraph 71 of the Fifth Report 1961 of the Public 
Accounts Committee reads: 

"The Committee gave consideration to the extent to which it felt it would wish to be 
informed regarding non-productive payments in future. Although it recognized the difficulty 
that would be involved in defining a 'non-productive payment', it came to the conclusion 
that information regarding such payments would be of value, and it accordingly requests 
the Auditor General, in his future annual reports to the House of Commons, to include 
listings of any such payments that might have come to his notice in the course of his 
audit." 

In accordance with the request contained in the foregoing observation, a listing is 
given, as Appendix 1 to this Report, of the payments that, in the absence of a precise 
definition, might be regarded as non-productive in character which were observed in 
the course of the audit of expenditures for the fiscal year 1962-63. 



Summary of Assets and Liabilities 

99. The Statement of Assets and Liabilities as at March 31, 1963, with comparable 
figures at the end of the preceding year, prepared by the Department of Finance for 
inclusion in the Public Accounts and certified by the Auditor General in accordance 
with section 64 of the Financial Administration Act, is reproduced as Exhibit 2 to this 
Report. 



66 AUDITOR GENERAL'S REPORT 

Assets 

100. The following table lists the assets at March 31, 1903, by main headings in the 
Statement of Assets and Liabilities, in comparison with the corresponding balances at 
the close of the two previous fiscal years: 

March 31, 1961 March 31, 1962 March 31, 1963 

Currenl assets $ 784,118,000 S 1,246,016,000 S 820,271,000 

Advances to the Exchange Fund Account 2,024,000,000 1.793,000.000 2,736,000,000 
Sinking fund and other investments held 

for retirement of unmatured debt 17,018,000 19,432,000 22,312,000 

Loans to and investments in Crown cor- 
porations 3,614,188,000 3,985,330,000 4,468,119,000 

Loans to national governments 1,378.196,000 1,339,797,000 , 1,210,777,000 

Other loans and investments 1.035,651,000 993,863,000 1,110,655,000 

Securities held in trust 30,043,000 25,837,000 26,016.000 

Deferred charges 733,702,000 727,826,000 936,644,000 

Suspense accounts 136,000 136,000 136,000 

Inactive loans and investments 91.824,000 94,824,000 94,824,000 

Total Assets 9,712,106,000 10,226,061,000 11.425,754.000 

Less — Reserve for losses on realization of 

assets 546,384,000 546,384,000 546,384.000 

Net Assets S 9.165,722,000 8 9,679,677,000 $ 10,879,370,000 



101. Current assets. The balances included under this heading at March 31, 1963, 

with the comparable balances at the close of the two previous years, were: 

March 31, 1961 March 31, 1962 March 31, 1963 

Cash S 486,760,000 $ 895,321,000 S 511,347,000 

Departmental working capital advances and 
revolving funds: 

Agricultural commodities stabilization ac- 
count 90,198,000 132,783,000 139,043.000 

Defence production revolving fund .... 15,651,000 27,297,000 39,068,000 

Other 65,234.000 63,300,000 65,156,000 

171.083,000 ',.380,000 243 £67, 000 

- curities held for the securities investment 

account 101,454,000 94,608.000 33,480,000 

Other current assets 25,051,000 32,707,000 32,177,000 

S 784,348,000 S 1.246.016,000 $ 820,271,000 



AUDITOR GENERAL'S REPORT 67 

The $139,043,000 balance of the Agricultural Commodities Stabilization Account at 
March 31, 1963 was $6,260,000 greater than the corresponding amount at the end of the 
preceding year, the difference being more than accounted for by the increase of $16,861,000 
in the inventory of butter held by the Agricultural Stabilization Board offset, in part, by 
a decrease of $9,311,000 in the inventory of pork products. 

The increase of $11,771,000 in the Defence Production Revolving Fund was mainly 
accounted for by progress payments of $8,136,000 made to various suppliers in connection 
with the production of CF-104G aircraft to be supplied to European nations under the 
Mutual Aid Program. 

The decrease of $61,128,000 in the balance of the Securities Investment Account was 
accounted for by (a) a decrease of $50,458,000 in the temporary holding of securities of 
Canada by the Minister of Finance under the authority of section 17 of the Financial 
Administration Act, and (b) the sale of $10,670,000 of the securities received by the 
Minister of Finance on February 21, 1962 on assignment from the Canadian Arsenals 
Limited Pension Fund, with the approval of the Governor in Council. As mentioned in 
last year's Report (paragraph 118) the assignment arose upon the transfer to the Public 
Service Superannuation Account of the liability for the payment of pensions to pensioners 
and former contributors to the fund. Under the terms of this transfer, the Minister of 
Finance credited the Public Service Superannuation Account with the proceeds derived 
from the securities sold during the year. At March 31, 1963 there remained $1,488,000 
of the securities to be sold. 

102. Advances to the Exchange Fund Account. This Account is operated by the 
Bank of Canada on behalf of the Minister of Finance, and advances are made by the 
Minister from time to time within the maximum ($3,000,000,000 at March 31, 1963) 
authorized by the Governor in Council under section 23 of the Currency, Mint and 
Exchange Fund Act, R.S., c. 315. The advances to the Account at each year-end are 
included in the Statement of Assets and Liabilities at their total, less repayments, with 
a parenthetical note giving the market value of the investments from the advances. 
Thus at March 31, 1963 the amount shown for "Advances to the Exchange Fund 
Account" was $2,736,000,000, being the total of the advances less repayments, whereas 
the market value of investments from advances was $2,757,046,000, indicating an unre- 
corded surplus of $21,046,000. By comparison, at the close of the two previous years there 
were unrecorded deficiencies of $33,310,000 at March 31, 1962 and $154,042,000 at March 
31, 1961. 

A summary of the transactions in the Account for its financial year ended December 
31, 1962 is included in paragraph 175 of this Report. 

103. Sinking fund and other investments held for retirement of unmatured debt. 
This item represents the investments held for the sinking fund maintained with respect 
to Newfoundland loans which were assumed under the Terms of Union. 

69960-3— 



is AUDITOR GENERAL'S REPORT 

104. Loans to and investments in Crown corporations. The following table lists these 

loans and investments at March 31, 1963, with the comparable balances at the close of 

the two previous years: 

March 31, 1961 March 31, 1962 March 31, 1963 

Central Mortgage and Housing Corporation! 1,510,711,000 S 1,701,029,000 $ 1,802,806,000 

Canadian National Railways 1,092,590,000 1,165,039,000 1,439,328,000 

The St. Lawrence Seaway Authority .... 339,927,000 368,216,000 390,888,000 

Farm Credit Corporation 155,754,000 209,971,000 268,968,000 

National Harbours Board 172,770,000 178,743,000 192,579,000 

Northern Ontario Pipe Line Crown Corpo- 
ration 123,750,000 119,035,000 110,555,000 

Atomic Energy of Canada Limited 60,930,000 65,827,000 53,258,000 

Canadian Overseas Telecommunication Cor- 
poration 31,686,000 37,918,000 49,321,000 

National Capital Commission 25,232,000 31,478,000 40,906,000 

Export Credits Insurance Corporation .... 10,000,000 15,288,000 34,955,000 

Polymer Corporation Limited 30,000,000 30,000,000 30,000,000 

Northern Canada Power Commission .... 26,463,000 26,158,000 19,003,000 

Other balances 34,375,000 36,628,000 35,552,000 



$ 3,614,188,000 $ 3,985,330,000 $ 4,468,119,000 



The increase of $102 million in the amount shown for Central Mortgage and 
Housing Corporation during the year ended March 31, 1963 was largely accounted for 
by advances of $137 million, less repayments of $69 million, pursuant to section 22 of the 
Central Mortgage and Housing Corporation Act, R.S., c. 46, together with advances of 
$45 million, less repayments of $7 million, in respect of Federal-Provincial projects. 

The increase of $274 million in the amount shown for Canadian National Railways 
was accounted for by advances of $303 million under Canadian National Railways 
Financing and Guarantee Acts and by a further investment of $19 million in 4% pre- 
ferred stock in the company pursuant to section 6 of the Canadian National Railways 
Capital Revision Act, R.S., c. 311, less a repayment of $3 million by Trans-Canada Air 
Lines, and reductions of $41 million and $4 million as a result of charging to expenditure 
the temporary loans made to the Canadian National Railways and its subsidiary, Trans- 
Canada Air Lines, to meet their 1962 "income deficits". 

Further loans of $7 million to The St. Lawrence Seaway Authority during the year 
under review, plus an additional $16 million for deferred interest on loans, accounted 
for the increase of $23 million during the year to bring the investment in the Authority 
to $390,888,000 at March 31. 1963 (see paragraph 158). 

The $110,555,000 of loans to the Northern Ontario Pipe Line Crown Corporation 
at March 31, 1903 were repaid in full by the Corporation in May 1963 following the sale 
of the Northern Ontario section of the all-Canadian natural gas pipe line. 



AUDITOR GENERAL'S REPORT 69 

105. Loans to national governments. The following is a listing of the balances of 
these loans at March 31, 1963 in comparison with the corresponding balances at the close 
of the two previous years : 

March 31, 1961 March 31, 1962 March 31, 1963 

Belgium $ 36,912,000 $ 34,605,000 $ 32,298,000 

France 143,650,000 135,200,000 67,600,000 

India 29,546,000 24,831,000 20,117,000 

Netherlands 74,013,000 68,850,000 32,130,000 

United Kingdom 1,091,544,000 1,074,476,000 1,057,045,000 

Other countries 2,531,000 1,835,000 1,587,000 



$ 1,378,196,000 $ 1,339,797,000 $ 1,210,777,000 



The reductions totalling $129 million during the year ended March 31, 1963 were the 
result of the continued orderly repayment of each of the loans as the instalments fell 
due, together with special repayments by the Governments of France and the Netherlands. 

106. Other loans and investments. The balances comprising this asset item at March 
31, 1963, with the comparable balances at the end of the two previous years, were: 

March 31, 1961 March 31, 1962 March 31, 1963 

Subscriptions to capital of and working 
capital advances and loans to inter- 
national organizations $ 631,127,000 $ 659,936,000 $ 693,998,000 

Veterans' Land Act advances 199,644,000 207,953,000 224,486,000 

Less— Reserve for conditional benefits . . 33,552,000 30,598,000 28,467,000 

166,092,000 177^55,000 196fil9,000 

Loans to provincial governments 98,372,000 97,879,000 116,818,000 

Balances receivable under agreements of 

sale of Crown assets 12,094,000 10,622,000 8,303,000 

Temporary loans to Old Age Security Fund 17,283,000 41,679,000 

Loans to Unemployment Insurance Com- 
mission 67,000,000 

Other balances 43,683,000 48,071,000 53,838,000 



$ 1,035,651,000 $ 993,863,000 $ 1,110,655,000 



The following is a listing of the balances comprising the $693,998,000 shown for the 
first item in the above table as at March 31, 1963: 

Subscriptions to capital: 

International Monetary Fund $ 577,250,000 

International Bank for Reconstruction and Development 80,483,000 

International Development Association 24,927,000 

International Finance Corporation 3,522,000 

686,182,000 
Working capital advances and loans 7,816,000 



$ 693,998,000 
69960-3—6J 



70 \l 1)1 TOR GENERALS REPORT 

During the year ended March 31, 1963, Canada's subscription to the International 
Monetary Fund was increased by $13 million, through the issue of additional non-interest 
bearing notes, as a result of revaluation of the Canadian dollar portion of the subscrip- 
tion based on the rate of exchange for the United States dollar at January 31, 1963. 

The §41,679,000 of temporary loans to the Old Age Security Fund at March 31, 
1963 represented the deficit resulting from transactions up to that date in the special 
account provided for by section 11 of the Old Age Security Act, R.S. 200. The following 
is a summary of the transactions relating to the Fund during the past three years: 

1960-61 1961-62 1962-63 

Collections of tax 

On sales $270,231,000 $284,879,000 $302,239,000 

On personal incomes 229,400,000 258,950,000 273,650,000 

On corporation incomes 103,500,000 100,125,000 115,250,000 

603,131,000 643,954,000 691,139,000 

Payments of pensions under the Act 592,413,000 625,107,000 734,382,000 

Surplus or (deficiency) during the year 10,718,000 18,847,000 (43,243,000) 

Preceding year's balance brought forward (28,001,000) (17,283,000) 1,564,000 

Balance at credit or (debit) at year-end $ (17,283,000) $ 1,564,000 $ (41,679,000) 



The loans to the Unemployment Insurance Commission in 1960-61, on the security 
of Government of Canada bonds, were repaid in full during the fiscal year ended March 
31, 1962 (see paragraph 181). 

107. Securities held in trust. The $26,016,000 total of balances comprising this item 
in the Statement is represented by securities held for the following accounts: contractors' 
securities. v ! 1.435.000; guarantee deposits in respect of oil and gas permits, $6,515,000; 
guarantee deposits in respect of customs duties and excise taxes, 84.226.000; securities 
held for pilots' pension funds, $3,803,000; and other, $2,037,000. 

10S. Deferred charges. The balances included under this heading at March 31, 1963, 
with the comparable balances at the close of the two previous years, were: 

March31,1961 March 31. 1962 March 31, 1963 

Unamortized portion of actuarial deficiencies — 

Canadian forces superannuation account $326,300,000 S 326.300,000 $524,849,000 

Public Service superannuation account 276,661,000 270.661,000 276,661,000 

Royal Canadian Mounted Police superannuation 
account 3,533,000 3,533.000 

gOSJSeifiOO 606,49/,,000 805J04SJ000 

Unamortized loan flotation costs 130,741,000 121,332,000 131,601,000 

$ 733,702,000 $ 727,826,000 $ 936,644,000 






AUDITOR GENERAL'S REPORT 71 

The amounts appearing under the heading "unamortized portion of actuarial defi- 
ciencies" represent the balances of amounts set up in the accounts when bookkeeping 
entries were made for the purpose of increasing the balances at credit of the relative 
superannuation accounts, including an additional entry of $198,549,000 in the Canadian 
Forces Superannuation Account during the year under review. In paragraphs 124 and 
125 the Audit Office view is again restated that these bookkeeping entries should not 
have been made and that, instead, the actuarial deficiencies should have simply been 
disclosed by means of a Note to the Statement of Assets and Liabilities. 

The item "Unamortized loan flotation costs" records the unamortized portion of the 
cost of discounts and commissions incurred in the issuance of loans. The following is a 
summary of the transactions for the year under review: 

Balance, April 1, 1962 $ 121,332,000 

Add: 
Costs incurred in issuing new loans during the year 50,751,000 

Adjustments due to cancellations, exchanges, conversions and additional issues 

of existing loans 2,214,000 

f 

174,297,000 
Deduct : 
Amortization charges included in 1962-63 Expenditure 42,696,000 

Balance, March 31, 1963 $ 131,601,000 



109. Suspense accounts. The $136,000 shown for this item on the assets side of the 
Statement represents the balance, unchanged during the year under review, of the 
Cheque Adjustment Account, which reflects the total of the individual balances that 
remained unadjusted in the process of reconciling payments to the chartered banks for 
redemption of paid cheques with the relative amounts as subsequently determined. 
The balance includes amounts relating to the fiscal years 1942-43 to 1960-61. 

110. Inactive loans and investments. The $94,824,000 shown for this item in the 
Statement at March 31, 1963, unchanged from the two previous years, comprised the 
following balances: 

Loan to China, in 1946, under the Export Credits Insurance Act $49,426,000 

Loans to Greece and Roumania, in 1919, for the purchase of goods produced in 

Canada 30,854,000 

Balance arising out of implementation of guarantee, given under the Export Credits 
Insurance Act, of loans by chartered banks to Ming Sung Industrial Company 
(carrying prior guarantee by the Government of China) 14,470,000 

Loan to Province of Saskatchewan, in 1908, for the purchase of seed grain 74,000 



$94,824,000 



72 AUDITOR GENERAL'S REPORT 

Liabilities 

111. The following table lists the liabilities at March 31, 19(33 by main headings in 
the Statement of Assets and Liabilities in comparison with the corresponding balances 
at the close of the two previous fiscal years: 

March 31, 1961 March 31, 1962 March 31, 1963 

Current and demand liabilities S 1,147,561,000 S 1.23-1,081,000 $ 1.631,338,000 

Deposit and trust accounts 239,667,000 266,624,000 225,203,000 

Annuity, insurance and pension accounts 3,955,510,000 1,245,942.000 4,747,017,000 
Undisbursed balances of appropriations to 

special accounts 104,493,000 115,135,000 119,952,000 

Deferred credits 79,073,000 94,991.000 107,739,000 

Suspense accounts 8.618,000 5,305,000 6,055,000 

Unmatured debt 16,067,915,000 16,945,736,000 17,961,836,000 

$21,602,837,000 $22,907,814,000 $24,799,140,000 



112. Current and demand liabilities. The balances comprising this item in the State- 
ment at March 31, 1963, in comparison with the corresponding balances at the close of 
the two previous years, were: 

March 31, 1961 March 31, 1962 March 31, 1963 

Non-interest bearing notes payable to the 
International Monetary Fund and the In- 
ternational Development Association ...S 383,660,000 $ 372,032,000 $ 757,284,000 

Accounts payable 221,396,000 280,711,000 267,364,000 

Outstanding Treasury cheques 251,741,000 265,658,000 266,409,000 

Interest accrued 154,016,000 174,601,000 196,974,000 

Other balances 136,748,000 141,079,000 143,307,000 

$ 1,147,561,000 $ 1.234,081,000 $ 1,631,338,000 



113. Deposit and trust accounts. The following is a listing of the balances included in 
this item at March 31, 1963 in comparison with the corresponding balances at the close 
of the two previous fiscal years: 

March 31, 1961 March 31, 1962 March 31, 1963 

Deposits by Crown corporations $ 19,400,000 $ 24,175,000 $ 30,004,000 

Indian trust funds 28,516.000 28,523,000 28,877,000 

Post Office Savings Bank 2S,513,000 27,365,000 25,880,000 

Contractors' holdbacks 15,365,000 17,793.000 17,724,000 

Korean operations pool 16.117,000 16,117,000 16,117,000 

Contractors' security deposits 21,804,000 18,003,000 13,025,000 

Canadian Pension Commission (Administration 

trust fund) 10,980,000 12,087,000 13,024.000 

Guarantee deposits 13,758,000 10,403.000 12,505,000 

Instalment purchase of bonds by public service 

employees 11,845,000 12,116,000 12,297,000 

Other balances 73,369.000 99,742,000 55,750,000 



$ 239,667,000 $ 266,624,000 $ 225,203,000 






AUDITOR GENERAL'S REPORT 73 

The accounts of the Korean Operations Pool are maintained by the Australian 
Government and record the expenditures incurred by the Commonwealth countries which 
had participated in the Korean war, and the apportionment of these expenditures among 
the countries according to their respective shares. The balance of the account, as shown 
in the above table, represents the amount available towards settling the remainder of 
Canada's share of the expenditures when all other participating governments have sub- 
mitted their billings to the Pool and a final accounting is made. 

The $55,750,000 shown for "other balances" at March 31, 1963 represents the total 
of 82 balances, including: National Harbours Board special accounts, $7,855,000; Cana- 
dian National Railways Income deficit account, $7,635,000; veterans' trust funds, 
$7,276,000; Army Benevolent Fund, $6,013,000; United States of America, $5,902,000; 
deferred pay of Armed Forces personnel, $3,196,000; common school funds, $2,678,000; 
and National Research Council special fund, $2,013,000. 

114. Annuity, insurance and pension accounts. The balances making up this item 
at March 31, 1963, in comparison with the corresponding balances at the close of the two 
previous years, are given in the following table: 

March 31, 1961 March 31, 1962 March 31, 1963 

Government annuities $ 1,199,123,000 $ 1,235,305,000 $ 1.264,436,000 

Public Service Superannuation Account .. 1,468,848,000 1,586,929,000 1,724,116,000 

Canadian Forces Superannuation Account 1,155,333,000 1,279,239,000 1605,797,000 

Other balances 132,206,000 144,469,000 152,668,000 



$ 3,955,510,000 $ 4,245,942,000 $ 4,747,017,000 



The following is a summary of the transactions in the Government Annuities Account 
during the year under review: 

Balance, April 1, 1962 $ 1,235,305,000 

Add: 

Premiums received $ 37,532,000 

Interest credits 47,415,000 

84,947,000 



Deduct: 
Vested annuity and commuted value payments and refunds 55,399,000 

Transfer to Revenue of the excess over Fund valuation . . 417,000 



1,320,252,000 



55,816,000 



Balance, March 31, 1963 $ 1,264,436,000 



71 AUDITOR GENERAL'S REPORT 

\ summary oi the transactions in the Public Service Superannuation Account during 
the year ended March 31, 1963 is as follows: 

Balance, April 1, 1962 S 1,586,929,000 

Add: 

Contributions by participants S 68,401,000 

Contributions by Government 53,966,000 

Intere-t credits 66,362,000 

Other credits 274,000 

189,003.000 

1,775,932,000 
Deduct : 

Annuity payments 43,586,000 

Wit hdrawals of contributions 7,564,000 

Other charges 666,000 

51,816,000 

Balance, March 31, 1963 $ 1,724,116,000 



A comment is made in paragraph 124 regarding the composition of the balance at credit 
of this Account. 

The following is a summary of the transactions in the Canadian Forces Superannua- 
tion Account during the year ended March 31, 1963: 

Balance, April 1, 1962 $ 1,279,239,000 

Add: 

Contributions by participants $ 34,458,000 

Contributions by Government 58,103,000 

Interesl credits 53,085,000 

Actuarial adjustment (contra, "deferred charges" account) 198,549,000 

Other credits 314,000 

344,509,000 

1.623,748,000 

Deduct : 

Annuity payments 9,915,000 

Gratuities and withdrawal allowances 7,968,000 

Other charges 68,000 

17,951,000 

Balance, March 31, 1963 S 1,605,797,000 



A comment is made in paragraph 125 regarding the actuarial adjustment in this Account 
during the year and the composition of the balance at credit of the Account at the 
year-end. 

Included in the $152,668,000 shown for "other balances" at March 31, 1963 in the 
table given above with respect to the item "annuity, insurance and pension accounts", is 
the $14,636,000 uninvested portion of the Unemployment Insurance Fund on deposit 
with the Receiver General. A summary of the transactions in the Fund during the year 
under review, in comparison with the corresponding amounts for the two previous fiscal 
years, is given in paragraph 181. 



AUDITOR GENERAL'S REPORT 75 

115. Undisbursed balances of appropriations to special accounts. The following is 
a listing of the balances comprising this item in the Statement of Assets and Liabilities, 
compared with the corresponding balances at the close of the two previous fiscal years: 

March 31, 1961 March 31, 1962 March 31, 1963 

Colombo Plan Fund $ 67,533,000 $ 77,626,000 $ 85,325,000 

Railway Grade Crossing Fund 34,050,000 33,754,000 26,703,000 

National Capital Fund 2,810.000 3,660,000 6,776,000 

National Centennial Fund 1,000,000 

Other 100,000 95,000 148,000 

$ 104,493,000 $ 115,135,000 $ 119,952,000 



During the year ended March 31, 1963 an amount of $41,500,000, provided by 
Department of External Affairs Vote 55, was credited to the account for the Colombo 
Plan, while expenditures totalling $33,800,000 were charged to the account for aid given 
to countries in South and South-East Asia. 

Amounts totalling $5,833,000, provided under section 265 of the Railway Act, c. 234, 
R.S., and Department of Transport Vote 212, were credited to the account for the Rail- 
way Grade Crossing Fund during 1962-63, while expenditures totalling $12,884,000 were 
incurred in aiding in the cost of installing protective devices at railway grade crossings, 
grade separations and reflective markings on the sides of railway cars. 

During the year ended March 31, 1963 an amount of $8,616,000, provided by Depart- 
ment of Public Works Vote 220, was credited to the account for the National Capital 
Fund, while amounts totalling $5,500,000 were charged to the account for payments to 
the National Capital Commission to finance the cost of capital projects approved by 
the Governor in Council. 

A comment regarding the $1,000,000 at the credit of the National Centennial Fund 
at March 31, 1963 is made in paragraph 151 of this Report. 

116. Deferred credits. The following is an analysis of this item at the close of the 
1962-63 fiscal year and the two previous years: 

March 31, 1961 March 31. 1962 March 31, 1963 

Deferred interest on loans to The St. Lawrence 
Seaway Authority $ 19,427,000 $ 33,716,000 8 49,388,000 

Deferred interest on loans made under the United 

Kingdom Financial Agreement Act, 1946 44,174,000 44,174,000 44,174,000 

Credits arising from the recording of agreements 

of sale of Crown assets 9,955,000 8,772,000 6,743,000 

Equity in agency account of Crown Assets Dis- 
posal Corporation 4,929,000 7,242,000 5,884,000 

Other balances 588,000 1,087,000 1,550,000 

$ 79,073,000 $ 94,991.000 $ 107,739,000 



The only significant change during the year was the increase of $15,672,000 in the 
deferred interest on loans to The St. Lawrence Seaway Authority. This deferred interest 



76 AUDITOR GENERAL'S REPORT 

is payable by the Authority over a 46-year period commencing in 1964, along with 
repayments of principal (see paragraph 158). 

117. Suspense accounts. There was no appreciable change in this item on the 
liabilities side of the Statement during the year ended March 31, 1963. The year-end 
figure of $6,055,000 included balances of $1,358,000 for the unclaimed cheques account 
and $1,122,000 for the National Defence replacement of materiel account. During the 
year, credits to the latter account totalled $840,000 for the proceeds of sales to other 
countries, pursuant to section 11 of the National Defence Act, while an amount of 
$1,114,000 was charged for the procurement of replacement materiel. 

118. Unmatured debt. A summary of the unmatured debt outstanding at March 31, 
1963, in comparison with balances outstanding at the close of the two previous years, is 
as follows: 

March 31, 1961 March 31, 1962 March 31, 1963 

Bonds 

Payable in Canada S 14,002.751 ,000 $ 14. 930, 571 ,000 $ 15,385,847,000 

Payable in London 31.989,000 31,990.000 34,584,000 

Payable in New York 98,175,000 98,175,000 376,405,000 

U,132#15,000 15,060,736,000 15, 7 96 £36, 000 

Treasury Bills (not exceeding 180 days) . . 1,935,000,000 1,885,000.000 2,165,000,000 

$ 16.067,915,000 S 16,945,736,000 $ 17,961,836,000 



The increase of $455 million in the debt payable in Canada is the amount by which 
new borrowings of $3,834 million during the year exceeded redemptions of $3,379 million 
of prior issues. Canada savings bonds accounted for $1,712 million of the new borrowings 
and $1,185 million of the redemptions. 

The increase of $278,230,000 in the bond debt payable in New York resulted from 
a new security issue in the principal amount of $270,000,000 due October 15, 1987, with 
interest at 5%, together with a year-end adjustment to the ruling rate of exchange. 

Issues payable in London were valued on the basis of £1 Sterling=$3.027 Canadian 
while those payable in New York were valued at $1 U.S. =$1.08108 Canadian. 

It has always been the practice to include Treasury Bills and bonds maturing within 
the ensuing fiscal year in the amount shown for "unmatured debt" along with issues 
maturing at later dates. In addition to Treasury Bills of $2,165,000,000 shown in the 
above summary as maturing within 180 days, the following issues, all payable in Canada, 
fall due within the current fiscal year: 

Loan of 1960 due April 1, 1963 $ 12,802,000 

Loans of 1961 and 1962 due April 1, 1963 300,000,000 

Loans of 1961 due June 1, 1963 275.000,000 

Canada Savings Bonds of 1952 due August 1, 1963 19,203,050 

Eighth Victory Loan due October 1, 1963 223,020,200 

Loan of 1960 due December 15, 1963 300,000,000 

Loan of 1963 due February 1, 1964 125,000,000 

$ 1,255.025,250 



AUDITOR GENERAL'S REPORT 77 

Net Debt 

119. With the Liabilities amounting to $24,799,140,000 (paragraph 111) and the 
Assets to $10,879,370,000 (paragraph 100), the Net Debt at March 31, 1963 was 
$13,919,770,000. The following is an analysis of the Net Debt Account for the year under 
review : 

Balance, April 1, 1962 $13,228,137,000 

Add — Deficit for the fiscal year 1962-63: 

Expenditure $ 6,570,342,000 

Revenue 5,878,709,000 

691,633,000 

Balance, March 31, 1963 S 13,919,770,000 

Contingent Liabilities 

120. A note on the Liabilities side of the Statement of Assets and Liabilities gives 
the totals of the several classes of contingent liabilities outstanding at the year-end 
and makes reference to the appendix to the Public Accounts (Volume I, page 180) 
where details are to be found. 

The following is a summary of the main contingent liabilities with determinate 
amounts which were outstanding at March 31, 1963, in comparison with the correspond- 
ing amounts at the close of the two preceding years: 

March 31, 1961 March 31, 1962 March 31, 1963 

Insured loans made by approved lenders 
under the National Housing Act, 1954 ..$ 3,017,404,000 $ 3,640,000,000 $ 4,123,000,000 

Railway securities guaranteed as to prin- 
cipal and interest 1,672.634,000 1,636,100,000 1,381,361,000 

Deposits maintained by chartered banks in 
Bank of Canada 656,295,000 696,008,000 741,870,000 

Guarantees under Export Credits Insurance 
Act, Part I 109,934,000 291,700.000 333,646,000 

Loans made by chartered banks to Cana- 
dian Wheat Board 125,558,000 113,555,000 80,331,000 

Other contingent liabilities of determinate 
amounts 89,783,000 66,299,000 73,998,000 

$ 5,671,608,000 $ 6,443,662,000 $ 6,734,206,000 

Among the contingent liabilities of indeterminate amount is that in respect of loans 
made by approved lending institutions under National Housing Acts prior to the 1954 
Act. 



Comments on Assets and Liabilities 

121. Section 64 of the Financial Administration Act requires that there be included 
in the Public Accounts "a statement, certified by the Auditor General, of such of the 
assets and liabilities of Canada as in the opinion of the Minister [of Finance] are 



78 AUDITOR CF.NERAI.S REPORT 

required to Bhow the financial position of Canada as a1 the termination of the fiscal 
year". 

122. The Statement of Assets and Liabilities at March 31, 1963 was prepared by 
the Department of Finance on the same basis as in previous years, the following explana- 
tion concerning this basis being included in the introduction to the Public Accounts: 

"With certain exceptions, taxes and revenues receivable, revenue and other asset 
accrual.- and inventories of materials, supplies and equipment are not recorded as assets 
i except when these are held as charges against working capital accounts or revolving funds) 
nor are public works and buildings or other fixed or capital assets. Following the principle 
that only realizable or interest- or revenue-producing assets should be offset against the g 
liabilities, costs of capital works are charged to expenditures at the time of acquisition or 
construction. Consequently, government buildings, public works, national monuments, 
military assets (such as aircraft, naval vessels, and army equipment) and other capital 
works and equipment are recorded on the statement of assets and liabilities at a nominal 
value of $1 as the value is not considered as a proper offset to the gross liabilities in 
determining the net debt of Canada. 

"On the liabilities side, accrued liabilities (except for interest accrued on the public 
debt) are not taken into account in determining the obligations of the government. However, 
under section 35 of the Financial Administration Act, liabilities under contracts and other 
accounts payable at March 31 if paid on or before April 30 may be charged to the accounts 
for the year. These are recorded as accounts payable in the 'Current and demand liabilities' 
schedule to the statement of assets and liabilities." 

The comment was made in last year's Report (paragraph 139) that, while the State- 
ment of Assets and Liabilities may seem to correspond in appearance to the balance sheet 
of a large commercial undertaking, it is important for the reader to understand that it is 
not a balance sheet within the generally accepted meaning of the term. This is because 
the Statement in its present form omits a number of items which would normally appear 
as assets on a commercial balance sheet, wdiile at the same time including others which 
are of doubtful value. Similarly, certain items appear as liabilities which are not generally 
found as such in commercial practice. The showing of the excess of liabilities over net 
assets as a "net debt" item on the assets side of the Statement is confusing, and in our 
view the term would be more appropriately used to describe the net result shown by a 
statement exhibiting the gross debt, less recorded assets, at the termination of the 
fiscal year. 

( )ver the years, as was mentioned in last year's Report, the Audit Office has sub- 
scribed to the view that little advantage would be gained by attempting to convert the 
centra] accounting system of the Government from the cash basis to the accrual basis. 
It has recognized that the Executive must know at all times what funds are required to 
be raised to meet expenditures expected to come in course of payment within the 
fiscal year. Parliament in turn must always be basically interested in examining the 
country's financial needs in terms of cash required when considering budget proposals 
and estimates of proposed expenditures. 

However, as will be evident from some of the following comments in this section 
of the Report, we believe that the Statement and its contents could be improved from 



AUDITOR GENERAL'S REPORT 



79 



the standpoint of clarity and presentation so as to achieve maximum disclosure of 
information for the benefit of Parliament and the public. 

123. Accounts receivable. As explained in the quotation included in the preceding 
paragraph, taxes and other revenues receivable are not recorded as assets in the State- 
ment of Assets and Liabilities. 

Information regarding the total accounts receivable of each department at the 
year-end, in comparison with the corresponding total at the close of the preceding year 
(other than with respect to balances receivable by the Taxation Division of the Depart- 
ment of National Revenue) is given in the several departmental sections of Volume II 
of the Public Accounts. There is, however, no one place in the Public Accounts where 
information regarding the departmental totals and the substantial over-all total of 
accounts receivable is available. We suggested in last year's Report that it would be 
informative to Parliament were an appendix giving this information included in the 
Public Accounts in future. 

The following summary of accounts receivable includes the totals given in the 
departmental sections of the Public Accounts at March 31, 1963 together with totals 
of balances receivable as at February 28, 1963 by the Taxation Division, as provided to 
us by that Division : 



Department 

Agriculture 

Citizenship and Immigration . . . 

Defence Production 

Finance 

Justice 

National Defence 

National Health and Welfare . . 

National Revenue — 

Customs and Excise Division 

Taxation Division 

Northern Affairs and National 
Resources 

Public Works 

Royal Canadian Mounted Police 

Trade and Commerce 

Transport 

Veterans Affairs 

Other departments 





Previous Y( 


jars 




Current year 


Collectable 


Uncollectable 


Total 


$ 1,184,198 


$ 736,331 


$ 


36,322 


$ 1,956,851 


67,925 


256,733 




186,346 


511,004 


1,115 


1,911 




259,329 


262,355 


100,104 


8,495 




607 


109.206 


203,401 


129 




18,841 


222,371 


4,266,901 


2,170,985 




217,913 


6,655,799 


698,189 


314,815 




193.051 


1,236,055 


i 7,923,513* 






2,229,997* 


10,153,510 


100,637,394* 






21,640,427* 


182,277,821 


I 

99.333 


298,870 




25,055 


423,258 


713,797 


200,324 




140,536 


1,054,657 


311,405 


10,904 




24,489 


346,798 


119,620 


8,929 




7,781 


136,333 


3,791. S41 


3,734,192 




30,526 


7,556,559 


3,817,265 


2,420,500 




800,216 


7,037,981 


213,054 


85,614 




51,245 


349.913 


$ 184,149,055 


$ 10,278,732 


$ 


25,862,684 


$ 220,290,471 



* These totals relate to both current and previous years. 



gO AUDITOR GENERAL'S REPORT 

The accounts receivable totals shown in the above table were after writing off the 
following uncollectable debts of $1,000 or less deleted from the accounts during the year 
under the authority of section 23 of the Financial Administration Act: 

External Affairs $ 14,511 

Nat ional Defence 22,318 

National Revenue — 

Customs and Excise Division 328,797 

Taxation Division 813,224 

Transport 15,655 

Veterans Affairs 95,867 

Other departments 16,568 



$ 1,306,940 



It will be appreciated that whether accounts receivable are kept in memorandum 
form or recorded as an asset in the Statement of Assets and Liabilities, they are none- 
theless debts due to the Crown, and their accurate recording and ultimate collection are 
primarily responsibilities of the departments concerned. While we have again found that 
most of the departments having extensive accounts receivable keep their records accu- 
rately and efficiently, this does not apply in the case of some departments where accounts 
receivable as such are not an important factor. We continue to believe, as was mentioned 
in last year's Report, this situation to be largely due to the failure of these departments 
to maintain controlling accounts and to provide for an effective internal verification of the 
accounts by officers other than those responsible for keeping the accounts. Such weak- 
nesses in internal control should be remedied in order to reduce the possibility of accounts 
being tampered with and collections misappropriated. 

124. Public Service Superannuation Account. In paragraph 144 of last year's Report 
and also in earlier Reports reference was made to the extra-statutory "bookkeeping 
entries" aggregating $450 million which were made in 1951-52 and 1960-61 in order to 
increase the balance at credit of the Public Service Superannuation Account to the 
amount of the currently estimated actuarial liability. The offsetting debits were recorded 
in an "asset" account captioned "deferred charge — unamortized portion of actuarial 
deficiency — public service superannuation account". 

In the years 1951-52, 1952-53 and 195G-57 portions of the 1951-52 deferred charge 
of |312 million (in the amounts of $98 million. $25 million and $50 million, respectively) 
were written off to Expenditure, leaving a balance of 8139 million at March 31. 1957. 
This was increased to $277 million in 1960-01, when a further entry was made to the 
credit of the Public Service Superannuation Account following the actuarial valuation 
made as of December 31, 1957. 

In previous years* Reports, we have expressed the view that the Public Service 
Superannuation Account should have been credited (in addition to amounts contributed 



AUDITOR GENERAL'S REPORT 81 

by participants) only with amounts provided by section 32 of the Public Service Super- 
annuation Act or by special parliamentary appropriations — and that the offsetting book- 
keeping entries should not have been made. In our opinion the actuarial deficiency 
remaining after credits provided for by Parliament had been duly recorded should have 
been fully explained each year by means of a note to the Statement of Assets and 
Liabilities. In his Budget Speech of June 13, 1963, the Minister of Finance indicated his 
concern at the magnitude of the actuarial deficiency. 

The amount of the actuarial deficiency is, in fact, considerably greater than the 
$277 million indicated on the Statement of Assets and Liabilities. This amount continues 
to represent the estimated actuarial deficiency at December 31, 1957. However, in our 
1961 Report (paragraph 59) reference was made to the fact that, as mentioned in a note 
to the Statement of Assets and Liabilities as at March 31, 1961, the balance was not 
adjusted to reflect the additional liability resulting from general salary and pay increases 
during 1960-61, estimated at $80,700,000. Moreover, as mentioned in paragraph 52 of this 
Report, no account has been taken of the considerable (though not officially estimated) 
additional actuarial liabilities that arose between April 1, 1961 and March 31, 1963 as a 
result of salary and pay increases granted from time to time to substantial groups of 
Public Service employees. 

Section 33 of the Public Service Superannuation Act, 1952-53, reads as follows: 

"The Minister shall lay before Parliament at least once in every five years an actuarial 
report on the state of the Superannuation Account, containing an estimate of the extent to 
which the assets of the said Account are sufficient to meet the cost of the benefits payable 
under this Act." 

The Act is silent as to the remedy to be applied when a deficiency is found to exist, and 
no proposal for dealing with the actuarial deficiency was made when the report on the 
last actuarial valuation was tabled in the House on June 20, 1960. We understand that a 
further actuarial valuation as at December 31, 1962 has been undertaken and is expected 
to be completed by March 1964. 

125. Canadian Forces Superannuation Account. In the last three Reports, references 
have been made to the non-cash or bookkeeping entry of $326,300,000 which gave credit 
to this Account in 1958-59, with an offsetting amount being charged to the "asset" account 
entitled "deferred charge — unamortized portion of actuarial deficiency — Canadian Forces 
Superannuation Account". 

In 1962-63, following an actuarial valuation as of December 31, 1960, adjusted to 
March 31, 1963, a further bookkeeping credit of $19S, 549,000 was made, with an offsetting 
charge to the "asset" account referred to above, bringing the additional amounts thus 
included in the balance at credit of the Account to a total of $524,849,000. 

The Audit Office view continues to be that amounts additional to contributions by 
members of the Forces should be credited to the Account only as provided for by 
Parliament — either under section 24 of the Canadian Forces Superannuation Act or by 
special appropriation. As in the case of the Public Service Superannuation Account 



82 AUDITOR GENERAL'S RHI'ORT 

i paragraph 124 ) our view is that the actuarial deficiency remaining after recording 
credits provided for by Parliament should be explained each year by means of a note to 
the Statement of Assets and Liabilities. 

126. R.C.M.P. Benefit Trust Fund. Comments were made in last year's Report 
(paragraph 146) and in that of the preceding year (paragraph 115) regarding the use 
made of this Fund. 

The major outlay from the Fund during the year under review again took the 
form of a distribution to each member of the Force. Individual payments of $35, 
compared with $30 in the preceding year, accounted for a total of $214,000 out of the 
gross expenditure of §216,000. Although it had been expected that the Fund would be 
utilized to a greater extent for the making of loans and grants in appropriate circum- 
stances, little demand for them has materialized and only $315 was paid out on this basis 
during the year. 

The Fund had a balance of $392,510 at .March 31, 1963. In addition to cash resources 
of $240,230 on deposit with the Receiver General, and $52,100 (par value) of Dominion 
of Canada bonds in like custody, assets included the $98,350 balance of a loan to a 
members' recreational organization and $1,830 in loans to individual members. 

127. Members of Parliament Retiring Allowances Account. As forecast in paragraph 
147 of the 1962 Report, disbursements from the Members of Parliament Retiring Allow- 
ances Account in 1962-63 exceeded receipts, resulting in a further reduction of $133,000 
in the balance of the Account which amounted to $1,295,000 at March 31, 1963. 

During the 1963-64 fiscal year substantial changes were made in the Members of 
Parliament Retiring Allowances Act, the effect of which has not yet become apparent. 



Grown Corporations 

12S. Section 85 of the Financial Administration Act requires that each Crown 
corporation prepare, in respect of each financial year, a balance sheet, a statement of 
income and expense and a statement of surplus "containing such information as, in the 
case of a company incorporated under the Companies A.d is required to be laid before 
the company by the directors at an annual meeting". 

129. Section 87 of the Act requires the auditor of a Crown corporation to report 
annually to the appropriate Minister the result of his examination of the accounts and 
financial statements of the corporation, and the report is required to state whether, in 
his opinion: 

"in i proper books of account have been kept by the corporation; 

(b) the financial statements of the corporation 

(i) were prepared on a basis consistent with that of the preceding year and are in 
agreement with the books of account, 



AUDITOR GENERAL'S REPORT 83 

(ii) in the case of the balance sheet, give a true and fair view of the state of the 
corporation's affairs as at the end of the financial year, and 

(iii) in the case of the statement of income and expense, give a true and fair view of 
the income and expense of the corporation for the financial year; and 

(c) the transactions of the corporation that have come under his notice have been within 
the powers of the corporation under this Act and any other Act applicable to the 
corporation." 

In addition, the auditor is required to call attention to any other matter falling within 
the scope of his examination that in his opinion should be brought to the attention of 
Parliament. 

130. Section 87 of the Act further requires that the annual report of the auditor be 
included in the annual report of each corporation, and section 85 directs that such annual 
report be laid before Parliament by the appropriate Minister within fifteen days after he 
receives it from the corporation or, if Parliament is not in session, within fifteen days 
after the commencement of the next ensuing session. 

The financial statements of the various corporations, together with the related audit 
reports, are published in Volume III of the Public Accounts. 

131. Crown corporations are classed as "agency" or "proprietary" in Schedules "C" 
and "D" to the Financial Administration Act. Those in the former class are responsible, 
in general, for the management of procurement, construction, service or disposal activities 
on behalf of the Crown. Those in the latter class are responsible for the management of 
lending or financial operations, or for the management of commercial and industrial 
operations involving the production of or dealing in goods and the supplying of services 
to the public. 

132. The Auditor General is the auditor of the following Crown corporations whose 
accounts and financial statements were examined for their financial years terminating 
during, or coinciding with, the fiscal year ended March 31, 1963: 

Corporation Class Reporting Minister 

Atomic Energy of Canada Limited Agency Defence Production 

Canadian Arsenals Limited Agency Defence Production 

Canadian Broadcasting Corporation Proprietary Secretary of State 

Canadian Commercial Corporation Agency Defence Production 

Canadian National (West Indies) Steamships 

Limited Agency Transport 

Canadian Overseas Telecommunication Corpora- 
tion Proprietary Transport 

Canadian Patents and Development Limited .... Agency Defence Production 

Cornwall International Bridge Company Limited Proprietarv Transport 



84 AUDITOR GENERALS REPORT 

Corporation Cl&Bfl Reporting Minister 

Crown Assets Disposal Corporation Agency Defence Production 

Defence Construction (1951) Limited Agency Defence Production 

Eldorado Aviation Limited Proprietary Trade and Commerce 

Eldorado Mining and Refining Limited Proprietary Trade and Commerce 

Export Credits Insurance Corporation Proprietary Trade and Commerce 

Farm Credit Corporation Proprietary Agriculture 

The National Battlefields Commission Agency Northern Affairs and 

National Resources 

National Capital Commission Agency Public Works 

National Centennial Administration Agency President of the Privy 

Council 

National Harbours Board Agency Transport 

Northern Canada Power Commission Agency Northern Affairs and 

National Resources 

Northern Ontario Pipe Line Crown Corporation Trade and Commerce 

Northern Transportation Company Limited .... Proprietary Trade and Commerce 

Park Steamship Company Limited Agency Transport 

Polymer Corporation Limited and subsidiary 

companies Proprietary Defence Production 

The St. Lawrence Seaway Authority Proprietary Transport 

Those companies for which the reporting Minister is shown above as the Minister 
of Defence Production are now reported upon to the House of Commons by the Minister 
of Industry. 

The Canadian World Exhibition Corporation was established on December 20, 1962. 
Its accounts will be audited and reported upon for the first time for the period from 
December 20, 1962 to December 31, 1963. 

133. Since the Auditor General has not been appointed the auditor of the following 
Crown corporations and other similar public instrumentalities, their accounts were not 
examined by him during the year under review: 



Corporation or Instrumentality Class Reporting Minister 

Bank of Canada Finance 

( "anadian National Railways Proprietary Transport 

The Canadian National Railways Securities 

Trust Proprietary Transport 

The Canadian Wheat Board Trade and Commerce 

Central Mortgage and Housing Corporation .... Proprietary Public Works 

Industrial Development Bank Finance 

Trans-Canada Air Lines Proprietary Transport 






AUDITOR GENERAL'S REPORT 85 

134. The paragraphs that follow treat, in turn, with the various corporations audited 
by the Auditor General. In each case, an introductory comment describes briefly the 
origin of the corporation and the nature of its activity, and this is followed by comments 
regarding the Crown's equity in the corporation, a summary of the operations for the 
financial year in comparison with the preceding year, and any other matter which it is 
felt might be of interest to the House of Commons. 

135. Atomic Energy of Canada Limited. This company was incorporated in 1952 
under the Companies Act, 1934 pursuant to the authority contained in the Atomic 
Energy Control Act, R.S., c. 11, to carry out research and development in nuclear power 
technology and allied fields and to promote uses of atomic energy. 

The head office of the company is in Ottawa. Nuclear reactors and major research 
and development laboratories are maintained at Chalk River, Ontario. A Commercial 
Products Division, located in Ottawa, is responsible for the sale of beam therapy units, 
radio-active isotopes and other allied products. A Nuclear Power Plant Division is situ- 
ated in Toronto and has responsibility for the administration, design, engineering and 
procurement services for the Douglas Point nuclear power station located on the shore of 
Lake Huron. In addition, this Division co-ordinates all the research and development 
contracts which the company places with Canadian industry. At the year-end there were 
162 of these contracts placed with 33 firms. 

A nuclear power demonstration plant at Rolphton, Ontario, was completed and put 
into operation during the year. This plant was built as a joint project of Atomic Energy 
of Canada Limited, the Hydro-Electric Power Commission of Ontario and Canadian 
General Electric Company Limited, and was built to demonstrate the Canadian type of 
nuclear power reactor. The Crown company's share of the costs of this project amounted 
to $25,537,000. This includes $724,000 spent on a design concept which was not used for 
the reactor, as constructed, and consequently the company's share of the plant is recorded 
in its accounts at a cost of $24,813,000. 

At the year-end the company had under construction a nuclear research establish- 
ment in the Whiteshell area, near Winnipeg, and a nuclear power station at Douglas 
Point. The cost of the research establishment ($8,693,000) is being financed by parlia- 
mentary appropriations and the cost of the power station ($19,811,000) by Government 
of Canada loans. 

The Crown's equity in the company at March 31, 1963 totalled $55,336,000, com- 
prising: loans for housing, $5,667,000; loans for construction of Douglas Point generating 
station, $19,281,000; capital stock, $54,000,000; and retained earnings, $1,627,000— less 
the depreciated value of the NRU reactor ($25,239,000) which was written off during the 
year, as authorized by the Special Appropriation Act, 1963 (Atomic Energy Vote 16). 



86 AUDITOR GBNER I/.'.S REPORT 

A comparative summary of income and expense for the past two years follows: 

r ended March 31 

Research Program Operal 19C.'5 1962 

K\l" • - 

1!. 9i arch ami development S 8,792,000 $ 8,456,000 

11 ration of research facilities l,79f>.000 1 V'7,000 

Engineering Ben ices 3,870,000 3,770,000 

Engineering design and applied development 1,497,000 1,393,000 

Nuclear power plant 9,125,000 7,060,000 

Administration 3,159,000 3,011,000 

Other 2,289,000 1,886,000 

30,527,000 27,173,000 

Income: Gross income from housing, hospital, transportation, etc. .. 1,896,000 1,438,000 

Excess of expense over income $28,631,000 ' $25,735,000 

Provided for by: 

Parliamentary appropriation S28,646,000 $25,756,000 

Less: Unexpended balance refundable to the Government of Canada 15,000 21,000 

$28,631,000 $25,735,000 

Research Program — Capital 

Expense: Construction of buildings and acquisition of equipment . . . .$ 9,349,000 S 9,223,000 

Provided for by: 

Parliamentary appropriation $ 8,431,000 S 8,198,000 

Retained earnings 918,000 1,025,000 

$ 9,349,000 $ 9,223,000 

Commercial Operations 

Income — 

Sales S 3,803,000 S 3,878,000 

Rentals, etc 159,000 196,000 

3,962,000 4,074,000 

Expense — 

Cost of sales, etc 1,858,000 2,178,000 

Ri search and development 652,000 444,000 

Selling 863,000 760,000 

Administrative 373,000 374,000 

3,746,000 3,756,000 

Excess of income over expense, credited to retained earnings $ 216,000 $ 318,000 

The sale of materials irradiated in the NRU reactor and the related costs are subject 
to a classified international agreement and are, therefore, not reflected in the above 
summary. 



AUDITOR GENERAL'S REPORT 87 

The rise of $3,354,000 during 1962-63 in research operating expenses was largely due 
to increases in: salaries and wages, including welfare benefits, $766,000; materials and 
supplies, $1,221,000; professional and special services, $1,553,000; less a decrease of 
$897,000 in contractual expenditures. The increase in salaries and wages resulted from an 
increase in the number of personnel employed, together with increased remuneration 
granted under union contracts. The commissioning and putting into operation of the 
nuclear power demonstration plant at Rolphton necessitated materials and supplies not 
heretofore required, plus additional professional and other services resulting in the 
marked increase in the cost of these items. In previous years one of the contractual 
expenditures of the research operating program was a "grant" of $215,000 to the company's 
Commercial Products Division. This policy was discontinued during 1962-63 and the 
decrease in expenditures under contracts is partly due to discontinuation of this "grant", 
as well as to the termination of payments under contracts upon completion of the nuclear 
power demonstration plant. 

The annual parliamentary appropriations for the Research Operating Program take 
into consideration credits for income arising from housing, hospital, transportation, etc. 
On the other hand, income incidental to the operation of research facilities and profits on 
disposal of plant, property, etc., is credited to Retained Earnings Account instead of 
to the annual appropriations for the Research Capital Program. However, the company 
supplements these appropriations by funds from retained earnings, and the amounts of 
the appropriations take into consideration undertakings on the part of the company to 
provide such funds. The balance of the Retained Earnings Account at March 31, 1963 
amounted to $1,627,000 and the company has undertaken to supplement the appropria- 
tions for the Research Capital Program by this amount over the next two years. 

136. Canadian Arsenals Limited. This company was incorporated in 1945 under the 
Companies Act, 1934, pursuant to authority contained in the Department of Reconstruc- 
tion Act, 1944, c. 18. The main objects of the company are the operation, maintenance 
and supervision of arsenals and other plants for the production of military stores and 
equipment, including the maintenance of physical facilities and manufacturing skills so 
that the operations could be expanded on short notice. 

At the year-end the company, with its head office in Ottawa, was the custodian of 
nine Crown-owned plants constructed at a cost in excess of $100 million. Eight of these 
plants were maintained in partially stand-by condition and one was idle. 

Funds totalling $392,000 were provided by the Department of Defence Production 
under authority of parliamentary appropriations and Governor General's special warrants 
towards construction, improvements and equipment acquired by the company during 
1962-63. Actual capital expenditures during the year amounted to $383,000 and the 
unexpended balance of $9,000 has been refunded. 

At March 31, 1963 the company's operations were financed by advances of $1,150,000 
from the Department of National Defence in respect of orders placed (reduced from 
$4,648,000 at March 31, 1962), advances of $2,250,000 from the Department of Defence 
Production Revolving Fund (reduced from $5,000,000 at March 31, 1962) and advances 



88 AUDITOR GENERAL'S REPORT 

of $7,500,000 from the Minister of Finance for working capital (unchanged from 
March 31, 1962). 

The following is a comparative summary of the results of operations for the past 

two years: 

Year ended March 31 

1963 1962 

Income — 

Sales $16,975,000 $22,936,000 

.Miscellaneous 815,000 503,000 



17,790,000 23,439,000 

Expense — 
Cost of sales, including indirect labour and other overhead expenses 

absorbed 15,310,000 20,250,000 

Indirect labour and other overhead expenses not absorbed in cost of 

sales 5,863,000 5,318,000 

Administrative expenses 818,000 911,000 

21,991,000 26,479,000 

Excess of expense over income $ 4,201 ,000 S 3,040,000 



Except for a minor increase in 1961-62 over 1960-61, there has been a steady decline 
in sales over the past eight years, from $81 million for the year ended March 31, 1955 to 
$17 million for the year ended March 31, 1963. The reduced level of sales, coupled with 
the company's obligation to maintain the Crown-owned plants in partial stand-by 
condition, has necessitated funds being appropriated by Parliament towards the cost of 
administration and operation of the company. During the year under review a total of 
$4,216,000 was provided by the Department of Defence Production for this purpose 
through parliamentary appropriations and Governor General's special warrants. Since 
the excess of expense over income for the year ended March 31, 1963 amounted to 
84,201,000, a balance of $15,000 remained at the year-end and was refunded in May 1963. 

Indirect labour and overhead expenses for the year totalled $10,853,000 (compared 
with $11,238,000 for the previous year) of which $4,990,000 was included in cost of sales. 
It has been the company's practice to calculate this portion of overhead expenses on 
direct labour costs at rates which theoretically would have absorbed all overhead 
expenses if all plants had been operating on a normal one-shift basis. The extent to 
which these rates were not sufficient to recover overhead costs, $5,863,000, shown in the 
above table as indirect labour and other overhead expenses not absorbed in cost of sales, 
can be largely attributed to idle capacity of production facilities. 

Inventories of raw materials, work in process and finished goods were reduced by 
$5,027,000 or 48% from their level at March 31. 1962. The inventory reduction includes 
write-offs of 8334,000, of which $32,000 was for products rejected in the previous year. 

Inference was made in last year's Report to the fact that a firm of management 
consultants, engaged in November 1960 by the Department of Defence Production to 



AUDITOR GENERAL'S REPORT 89 

undertake a study of the organization of the company, the efficiency and cost of its 
manufacturing operations and other aspects of its activities, had submitted its report 
and that this was under review by the management. During the year under review a 
number of the recommendations made by the consultants were implemented, while others 
were still under study. 

137. Canadian Broadcasting Corporation. The Canadian Broadcasting Corporation, 
established by the Canadian Broadcasting Corporation Act, 1936, c. 24, superseded by 
the Broadcasting Act, 1958, c. 22, operates the national television and radio broadcasting 
services and also administers an international shortwave service on behalf of the Govern- 
ment of Canada. The head office of the Corporation is in Ottawa, with regional offices 
in St. John's, Halifax, Montreal, Ottawa, Toronto, Winnipeg and Vancouver and an 
engineering headquarters in Montreal. 

The Corporation derives its funds for operating requirements in excess of advertising 
revenue and also funds for its capital requirements from grants provided through parlia- 
mentary appropriations. 

At March 31, 1963 the Crown's equity in the Corporation amounted to $42,798,000, 
an increase of $1,772,000 over the equity of $41,026,000 at the close of the preceding year. 

The following is a comparative summary of the results of operations for the last 
two financial years : 

Year ended March 31 

1963 1962 

Expense — 
Cost of production and distribution 

Cost of programs $70,005,000 $68,361,000 

Network distribution 10,146,000 10,062,000 

Station transmission 4,030,000 3,893,000 

Payments to private stations 4,335,000 4,851 ,000 

Commissions to agencies and networks 3,872,000 4,620,000 

92,388,000 91,787,000 

Operational supervision and services 8,427,000 8,843,000 

Selling and general administration 7,269,000 6,968,000 

Emergency broadcasting 282,000 13,000 

Total expense (including depreciation) 108,366,000 107,611.000 

Income — 
Advertising revenue 31,403,000 33,320,000 

Net expense $76,963,000 $74,291,000 



The "grant in respect of the net operating amount required to discharge the respon- 
sibilities of the national broadcasting service", $72,655,000, comprising net expense of 
$76,963,000 shown above, less depreciation of $4,308,000 charged for cost ascertainment 
purposes, was provided by parliamentary appropriations to the extent of $61,661,000 
and by Governor General's special warrants to the extent of $11,583,000. The unexpended 
portion of $589,000 was refunded to the Receiver General in May 1963. 



90 AUDITOR Gl VI R IL'S REPORT 

The net expense for the year under review increased by $2,672,000 over the net 
expense for the preceding year. $1,917,000 of the increase being attributable to decreased 
advertising revenue and $755, (too to increased expense. Continuing competition from 
independent television stations and increased competition from a private television net- 
work were the main reasons for the decrease in advertising revenue. An increase of 
62,000 in salaries and wages, which more than accounted for the overall increase in 
expense, was mainly due to salary increases required by collective bargaining agreements. 
An increase in the number of employees during the first four months of the fiscal year 
was more than offset by subsequent reductions and at March 31, 1903 the Corporation 
had 170 fewer employees than at the end of the preceding year. 

The following inventory balances at March 31, 1003 are compared with the corre- 
sponding balances at March 31. 1002: 

March 31 

1963 1062 Increase 

Engineering and production supplies $ 1,646,000 3 1,569,000 S 77,000 

Programs completed and in process of production 3,589,000 3,341.000 21S,000 

Prepaid film rights 1.705,000 1,514,000 191,000 

Prepaid script rights 172,000 143,000 29,000 



S 7,112.000 S 6,507,000 $ 545,000 



The bulk of the inventory of programs completed and in process of production con- 
tinued to be in Toronto and Montreal, for the English and French networks respectively, 
and included programs recorded in advance of broadcast on videotape (82,277,000) and 
film (SI. 170,000). Of the $1,705,000 of prepaid film rights. $1,303,000 or 80% was in the 
Quebec region, where the limited supply of French language film available in Canada 
necessitated the acquisition of rights in advance of normal requirements. 

The inventory balances shown in the above tabulation are after giving effect to the 
following write-offs: 

Programs completed and in process of production abandoned and cancelled because 
of performer or technical deficiencies or changes in programming S 115,000 

Film rights expired and not t< lccast because of changes in programming or unsuitable 
becau-i of program content 73,000 

Script rights expired or unsuitable 64,000 

Engineering and production supplies unusable and obsolete 3,000 



$ 255,000 



The comparable write-offs in the previous year totalled SI. 159. 000 which included 
$701,000 of stationery, technical and production supplies on hand and which were charged 
directly as expense at Match 31, 1002 in keeping with the Corporation's decision to 
charge these classes of supplies as expense when purchased rather than when used, as 

had been the previous practice 1 . 



AUDITOR GENERAL'S REPORT 91 

The capital requirements of the Corporation, amounting to $6,600,000, were pro- 
vided to the extent of $6,050,000 by parliamentary appropriations and $550,000 by 
Governor General's special warrant. With capital expenditure during the year amount- 
ing to $6,390,000 the unexpended balance of $210,000 was refunded to the Receiver 
General in May, 1963. 

During the last four years, $3,802,000 was spent in connection with the consolidation 
of facilities in Toronto, Montreal and Ottawa. A note to the financial statements at 
March 31, 1963 sets out that the present estimate of the cost of consolidation of facilities 
at these locations would be $83,058,000 of which, subject to the provision by Parliament 
of annual appropriations for the purpose, $1,597,000 would be expended during the year 
ending March 31, 1964 and the balance during the four years ending March 31, 1968. 

In the Reports for the past two years we drew attention to a recommendation con- 
tained in our report to the Board of Directors for the year ended March 31, 1960 that 
a useful purpose might be served by having the Corporation's organizational structure in 
terms of its present size, complexity and cost made the subject of a study by independent 
management consultants working in co-operation with the Audit Office. A study along 
these lines was made by the Royal Commission on Government Organization, and the 
results were contained in Report 19, Volume 4 of its Reports released on April 17, 1963. 
The Commissioners stated that, while they had not undertaken the detailed investigation 
and appraisal which may have been contemplated, their Report was proposing guidelines 
and criteria which, subject to government decisions on policy, should permit the Corpora- 
tion to adjust its internal organization and operations to management and performance 
needs. Several of the Commissioners' comments, particularly those relating to financial 
administration, dealt with matters which had been the subject of critical comment in 
our 1960 report, and we found that a number of these matters had, in the meantime, 
been remedied. These comments made by the Commissioners have been reviewed with 
the President and senior officers of the Corporation who have stated that further 
remedial action would be undertaken. 

138. Canadian Commercial Corporation. This Corporation, which was established in 
1946 under the Canadian Commercial Corporation Act, now R.S., c. 35, provides pro- 
curement services in Canada for the governments of other countries and for international 
organizations. The Corporation's main customer is the United States Government, 
although a considerable volume of purchasing of Canadian-made goods is carried out on 
behalf of the Department of External Affairs' External Aid Office for Colombo Plan 
projects. Some $153 million of suppliers' invoices were processed by the Corporation on 
behalf of its customers, during the year under review, in comparison with $107 million 
in the preceding year. 

At the year-end the equity of the Government of Canada in the Corporation was 
$9,899,177 represented by a $9.5 million working capital advance and an accumulated 
surplus of $399,177. 

The Corporation's operating budget for 1963-64 estimates a loss of $390,000; there- 
fore, it is assumed that by the end of the 1963-64 fiscal year the surplus will be almost 
depleted. A Board of Directors' minute of March 19, 1963 noted that the operating deficit 

699C0-3— 7 



AUDITOR GENERAL'S REPORT 

for tlic financial year L964-65 should be covered by a Department of Defence Production 
vote and that fche Department will be asked to provide an amount for this purpose in 
its estimates for that year. 

The following is a comparative summary of the operations of the Corporation for 
the past two years: 

V' ar ended March 31 
1963 1962 

Kxpcnse — 

Salaries and living expenses S 381,000 S 3;>1,000 

Other expense 110,000 87,000 

491,000 418,000 

Income — 

Purchase surcharges 127,000' 108,000 

Interest earned 119,000 66,000 

Exchange gain 8,000 62,000 

Other income 1,000 6000 

255,000 242,000 

Net loss % 236,000 S 176,000 



The increase in salaries and living expenses was due to the cost of additional staff 
required to process the increased volume of business and to a general salary increase 
retroactive to October 1, 1961. The increase in interest earned resulted from an increase 
in funds available for short-term investment while the decrease in exchange gain resulted 
from the fact that in the previous year a substantial gain resulted from the sale of 
United States funds. 

In last year's Report it was noted that the Department of Defence Production had 
been providing purchasing and accounting services free of charge to the Corporation 
since 1951. This arrangement was continued in the year under review. In addition, as a 
result of a reorganization during the year for the purpose of improving the services 
rendered on export contracts, 31 engineers and purchasing officers were loaned to the 
company without charge by the Department of Defence Production and Defence Con- 
struction (1951) Limited. 

139. Canadian National (West Indies) Steamships, Limited. The active operations 
of this company ceased in 1958 on the sale of its fleet of eight vessels to Cuban interests, 
and its activities are now confined to the winding-up of its affairs. The head office of the 
company is in Ottawa and its residual functions are being performed by staff of the 
Canadian Maritime Commission. 

During the year, by Supplementary Letters Patent. 16.390 of the company's 16.400 
outstanding shares were cancelled. Paid-up capital represented by the cancelled stock 



AUDITOR GENERAL'S REPORT 93 

amounted to $1,599,000. Payments to the Government of Canada, by the transfer to the 
Minister of Finance of $725,000 on deposit with the Receiver General and a remittance 
of $550,000, reduced the undistributed capital to $324,000 at December 31, 1962. 

The sum of $60,000 was received in war claims during the year and $42,000 of interest 
was earned on deposits and agreement of sale. Expenditures, comprising settlement of 
claims and legal expenses with respect to these claims, amounted to $5,000. 

The Crown's equity in the company at December 31, 1962 amounted to $468,000 
represented by the following : 

Cash $ 26,000 

Balance due under agreement of sale of vessels including accrued interest 456,000 

482,000 
Less : Matured bonds, unclaimed 14,000 

$ 468,000 



An outstanding claim of $59,000, filed with the War Claims Commission in respect 
of a loss due to enemy action, was not recorded on the balance sheet of the company as a 
receivable at the year-end since the amount of any further recovery is dependent on the 
adequacy of the War Claims Fund. On the other hand, no provision was made for a 
possible liability, estimated at approximately $50,000, in respect of legal claims filed or 
pending for damages resulting from the company's operations in past years. 

140. Canadian Overseas Telecommunication Corporation. The objects of this 
Corporation, established in 1949 by the Canadian Overseas Telecommunication Corpora- 
tion Act, now R.S., c. 42, are: to establish, maintain and operate external telecommunica- 
tion services for the conduct of public communications; to carry on the business of public 
communications; to improve the efficiency of telecommunication services generally; and 
to co-ordinate Canada's external telecommunication services with those of other parts 
of the Commonwealth. To these ends the Corporation, in 1950, acquired the external 
telecommunication facilities in Canada of Cable and Wireless Limited and Canadian 
Marconi Company Limited. The acquisition of these facilities provided cable and radio- 
telegraph circuits between Canada, Britain, Australia, New Zealand, New York and 
St. Pierre and Miquelon, and radio-telephone services with Britain and the West Indies. 
The more recent of many major subsequent developments include the following: the 
bringing into service in January 1963 of the cable system between Canada, Greenland 
and Iceland, with extensions to Britain and Europe; the acquisition of the right of use 
of an appropriate number of circuits in a cable between the United States and Jamaica 
and an extension to Montreal to provide service between Canada and Jamaica, beginning 
in February 1963; and the joint agreement with Britain, Australia and New Zealand to 
construct the Commonwealth Pacific Cable System between Canada and Australia and 
New Zealand which is to be brought into service in December 1963. 

69960-3— 7J 



94 AUDITOR GENERALS REPORT 

The equity of the Crown in the Corporation amounted to $56,947,000 at March 31, 
1903, an increase of $13,411,000 over the equity at the end of the previous year, and 
comprised 149,321,000 of advances for capital purposes and $7, 020,000 of accumulated 
.surplus. 

Loans to finance, in part, the capital requirements of the Corporation are provided 
by parliamentary appropriations. Capital additions during the year amounted to 
$17,781,000 towards which $13,000,000 was advanced by the Crown and $4,781,000 was 
provided out of accumulated earnings. At March 31, 1903 the estimated cost of completing 
approved capital projects was approximately $23,400,000 of which $14,400,000 related to 
the year ending March 31, 1904. 

The following is a summary of the income and expense of the Corporation for the 

last two years: 

Year ended March 31 

1963 1962 

Income — 
Telephone, telegraph, telex, circuit rentals, etc $12,321,000 $ 9,484,000 

Expense — 

Salaries, wages and employee benefits 2,591,000 2,304,000 

Depreciation 2,376,000 1,709,000 

Rental of circuits, etc 1,377,000 1,135,000 

Interest 1,339,000 921,000 

Operation, maintenance and repairs — buildings, plant and equipment 1,051,000 789,000 

Other 517,000 373,000 

9,251,000 7,231,000 

Less: Estimated amount recoverable from Commonwealth Network 1,025,000 1,164,000 

8,226,000 6,067,000 

4,095,000 3,417,000 

Deduct: Cost of additional pension benefits 116.000 94,000 

Profit before income tax 3,979,000 3,323,000 

Deduct: Income tax 1,971,000 1,658,000 

Net profit $ 2,008,000 S 1 ,665,000 



Income increased by $2,837,000 or approximately 30% over that of the previous year, 
the same percentage of increase as was recorded last year. The increase for the year under 
review is largely the result of greater revenue from circuit rentals, although revenue 
realized from telegraph, telephone and telex services also increased substantially. 

The $1,040,000 of cash and investments which was formerly held in trust for actu- 
arial deficiencies in pension funds for employees participating in pension plans of a 



AUDITOR GENERAL'S REPORT 95 

predecessor company was distributed during the year. Following payment of $499,000 
into the pension fund of the predecessor company in respect of former employees who are 
in receipt of pensions and those employees who elected to continue under the predecessor 
company's pension plan, the balance of $541,000 was transferred to the Public Service 
Superannuation Account of the Government of Canada, in accordance with the Regula- 
tions respecting the Transfer of Pensions of Employees of the Canadian Overseas Tele- 
communication Corporation as set forth in Order in Council P.C. 1961-1556 of October 
26, 1961. 

141. Canadian Patents and Development Limited. Section 17 of the Research 
Council Act, R.S., c. 239, provides for the incorporation of one or more companies by 
the National Research Council for the purpose of exercising certain of the powers con- 
ferred upon the Council. Under this authority Canadian Patents and Development 
Limited was incorporated in 1947 under the Companies Act, 1934, for the purpose of 
making available to industry, through licensing arrangements, the inventions and new 
processes developed by the Council. The services of the company, which is located in 
Ottawa, are available to government departments, publicly supported institutions and 
universities. 

The following summary shows the results of the company's operations for the year 
ended March 31, 1963 compared with the preceding year: 

Year ended March 31 



Income — 

Royalties, licensing fees, etc 

Less: Costs of licensing rights and related technical assistance, etc. 

Other income 



Expense — 

Salaries 

Services provided by National Research Council 
Patent attorneys' fees and other patent expense . 

Awards to inventors 

Other expenses 



Net profit for the year 

The increased income from royalties, licensing fees, etc., is largely attributable to 
one licence. Two other licences, while contributing to the increased income, were mainly 
responsible for the greater part of the increased cost of licensing rights and related 



1963 


1962 


$ 551,000 


$ 277,000 


63,000 


12,000 


491,000 


265,000 


24,000 


14,000 


515,000 


279,000 


29,000 


27,000 


36,000 


30,000 


55,000 


33,000 


19,000 


14,000 


10,000 


33,000 


149,000 


137,000 


$ 366,000 


$ 142,000 



96 AUDITOR GENERAL'S REPORT 

technical assistance, etc. The increased cost of patent attorneys' fees and other patent 
expense was largely due to an expenditure of $14,000 for the filing of patent applications 
on a device in a Dumber of countries. The item for "other expenses" shows a significant 
decrease because the preceding year's figure included a grant of $25,000 to a university, 
for applied research, referred to in last year's Report. 

The net profit of $306,000 for the year resulted in a corresponding increase in the 
Crown's equity in the company which, at March 31, 1963, was $820,000, comprising 
capital stock of $296,000 and surplus of $524,000. 

When approving the company's 1962-63 operating budget, the Minister of Finance, 
while recognizing the value of grants to persons carrying out applied research at uni- 
versities in fields from which the company had or might derive patent rights, expressed 
the opinion that for 1962-63 and future years "more emphasis should be placed on the 
development of products and techniques that the company is already in a position to 
lease on a royalty basis to private industry". As a result, during the year under review 
no grants were made for the carrying out of applied research at universities. However, 
the company initiated a program of assistance to Canadian industry in establishing new 
processes and at March 31, 1963 there were outstanding commitments of approximately 
$32,000 in connection with this program. 

142. Cornwall International Bridge Company Limited. This company was incorpo- 
rated in 1949 under the Companies Act, 1934, by private shareholders, for the purpose of 
operating a toll highway over the St. Lawrence River between Cornwall, Ontario, and 
Rooseveltown, New York, on railway bridges leased from two railway companies. These 
railway bridges were acquired by The St. Lawrence Seaway Authority and the Saint 
Lawrence Seaway Development Corporation (a wholly-owned United States corporation) 
in connection with the construction of the Seaway. In 1957, all of the outstanding stock 
of the bridge company was purchased jointly by the Seaway entities for $480,000, of which 
$200,000 was paid by the Authority. 

This international bridge system now uses new facilities constructed by the Seaway 
entities. The low-level railway bridges were replaced by a high-level South Channel span 
in 1958 and by a high-level North Channel span in 1962. 

In June 1962, the Seaway entities agreed to discontinue the operation of the toll 
bridge by the bridge company and to assign the operating responsibility to a wholly- 
owned subsidiary of the Authority to be incorporated under section 24A of the 
St. Lawrence Seaway Authority Act. On July 3, 1962, pending incorporation of the 
subsidiary, the Bridge Division of the Authority took over the operation of the bridge 
system and on January 1, 1963 The Seaway International Bridge Corporation, Ltd. took 
over operations on the same terms as were in effect for the Cornwall International Bridge 
Company Limited which is now in the process of winding up its affairs. 

By agreement between the seaway entities the annual revenues of the company have 
been applied in the following order of priority: 

tii in payment of all operating, administrative and general expenses of the bridge 
company; 



AUDITOR GENERAL'S REPORT 97 

(ii) in amortization of the costs of constructing the North Channel bridge by the 
Authority, plus interest, over a period of fifty years; and 

(iii) the balance distributed on a fifty-fifty basis between the Authority and the 
Corporation. 

A summary of the operations of the company for its past two financial years follows : 

Year ended September 30 

1962 1961 

Income — 

Bridge tolls $ 210,000 S 348,000 

Other 2,000 3,000 

212,000 351,000 

Expense — 

Salaries and wages 36,000 49,000 

Maintenance and repairs 31,000 25,000 

Rental of toll collection machines 10,000 13,000 

Advertising 25,000 2,000 

Other 35,000 52,000 

137,000 141,000 

Provision for amortization of cost of North Channel bridge owned by 
The St. Lawrence Seaway Authority 75,000 130,000 

212,000 271,000 

Fee for management, use of right-of-way over bridges, etc., payable to 
The St. Lawrence Seaway Authority (50% in trust for the Saint 
Lawrence Seaway Development Corporation) — $ 80,000 



As the company ceased operations on July 2, 1962 the figures shown for the year 
ended September 30, 1962 cover an operating period of only nine months, in comparison 
with a full period of twelve months in the previous year. 

Prior to or in the course of the winding up process, the company disposed of land, 
buildings and equipment at a loss of $10,000 and made provision in the accounts for a 
loss of $52,000 expected to be realized from the proposed conveyance to municipalities 
of title to a bridge and roads. 

After giving effect to these adjustments, which involved charges to surplus account, 
the shareholders' equity in the company at September 30, 1962 amounted to $48,000, 
comprising $50,000 of capital stock less a deficit of $2,000. 

143. Crown Assets Disposal Corporation. In 1944 the Surplus Crown Assets Act 
established the War Assets Corporation, which, by a 1949 amendment to the Act, became 
the Crown Assets Disposal Corporation. With certain specified exceptions, the Corpora- 
tion is responsible for the disposal of the surplus assets of all government departments 



98 AUDITOR GENERAL'S REPORT 

and most of the Crown corporations and agencies. Also, the Corporation has entered into 
agreements with Britain and the United States whereby it disposes of surplus property 
of these countries located in Canada. The Corporation's head office is located in Ottawa 
and sales offices are maintained in a number of other cities throughout Canada. 

As in the preceding year, the Corporation was authorized by the Governor in Council 
to retain 4% of the net proceeds of sales and other moneys received from sales of lands 
and buildings, and 10% of the net proceeds of all other sales, to meet its administrative 
and other expenses. A summary of the income and expense of the Corporation for the 
year ended March 31, 1963, together with the comparable figures for the previous year, 
follows : 

Year ended March 31 
1963 1962 

Income — 

Percentage of net proceeds of sales made and of other income 
earned, etc % 755,000 $ 955,000 

Expense — 

Salaries 

Employees' welfare benefits 

Kent 

Telephone, telegrams and postage 

Printing, stationery and office supplies 

Travel 

Other expenses 



Excess of income over expense $ 



The $200,000 decrease in income is largely explained by the fact that during the 
previous year there were several exceptional sales at substantial prices — to which reference 
is made below — from which the Corporation derived considerable income through the 
retention of the usual percentage of net proceeds of sales. 

The $23,000 increase in salaries was due to adjustments in the salaries of certain 
employees commensurate with increases granted to comparable classes in the civil service. 
There were 99 employees at March 31, 1963, the same number as at the close of the 
preceding year. 

Pursuant to section 81 of the Financial Administration Act, the Corporation was 
directed to pay to the Receiver General, as of March 31, 1959. and from time to time 
thereafter but at intervals of not longer than six months, all of its surplus in excess of 
$100,000. The 8135,000 excess of income over expense for the year under review was, in 
consequence, paid to the Receiver General, leaving the surplus balance unchanged at 
$100,000. 



450,000 


427,000 


44,000 


44,000 


53,000 


51,000 


27,000 


28,000 


22,000 


26,000 


14,000 


12,000 


10,000 


12,000 


620,000 


600,000 


$ 135,000 


$ 355,000 



AUDITOR GENERAL'S REPORT 99 

The equity of the Crown at March 31, 1963 in the Corporation's agency account 
was $5,884,000, compared with $7,242,000 at the end of the preceding year, and was 
largely represented by amounts receivable under long-term interest-bearing sales agree- 
ments totalling $5,764,000. 

The transactions in the agency account during the year ended March 31, 1963, 
compared with the previous year, are summarized as follows: 

Year ended March 31 

1963 1962 

Proceeds from sales, etc. 

Government of Canada $ 7,790,000 $12,355,000 

Other principals 823,000 631,000 

Interest earned 268,000 243,000 

8,881,000 13,229,000 

Less: Direct costs relating to sales 29,000 39,000 



8,852,000 13,190,000 

Deduct : 

Percentage of net proceeds from sales, etc., retained by the 

Corporation 755,000 955,000 

Remittances to Receiver General of Canada 8,715,000 9,355,000 

Other remittances 745,000 556,000 

10,215,000 10,866,000 

Increase (decrease) in equity: 

Government of Canada ( 1,358,000) 2,313,000 

Others ( 5,000) 11,000 



($1,363,000) $ 2,324,000 



During the year ended March 31, 1962, as previously mentioned, there were several 
exceptional sales of surplus assets at substantial prices. These sales included the former 
gun plant at Longueuil, $1,400,000, and a former R.C.A.F. station at Lachine, $2,300,000. 
The absence of such exceptional sales during the year under review accounts for a 
substantial part of the decrease of $4,565,000 in proceeds from sales on behalf of the 
Government of Canada. 

144. Defence Construction (1951) Limited. This Crown-owned agency was incorpor- 
ated in 1951 under the Companies Act, 1934, pursuant to the authority in section 7 of the 
Defence Production Act, now R.S., c. 62. The company is responsible for the awarding 
and supervision of contracts for defence construction projects, for which funds are 
provided by the department initiating a project, or by the United States government for 
projects undertaken on its behalf. During the year ended March 31, 1963 approximately 
$72 million was spent on such projects, compared with some $86 million during the 
preceding year. 

69960-3—8 



100 AUDITOR GENERALS REPORT 

Funds to cover the company's operating expenses are provided annually by means 
of a Department of Defence Production appropriation. The following is a comparative 
summary of the operating results for the past two years: 

Year ended March 31 

1963 1962 

Expense — 

Salaries and living allowances S 2,575,000 $ 2,683,000 

Travel and removal 246,000 302,000 

Employees' welfare benefits 181,000 190,000 

Other expenses 265,000 315,000 

3,267,000 3,490,000 

Income — 

Reimbursement for engineering and administrative services 45,000 27,000 

Other income 1,000 3,000 

46,000 30,000 

Net expense $ 3,221,000 S 3,460,000 



The completion of several major projects during the year and a decrease in the 
number of new contracts awarded, accompanied by a reduction in staff, accounted for the 
decrease in expense. 

145. Eldorado Aviation Limited. This company, which is a wholly-owned subsidiary 
of Eldorado Mining and Refining Limited, was incorporated in 1953 under the Companies 
Act. Operating from headquarters in Edmonton, the company provides air transportation 
services on behalf of the parent company and Northern Transportation Company 
Limited, another subsidiary of Eldorado Mining and Refining Limited. These two com- 
panies share the cost of operations of Eldorado Aviation Limited on a "cost per ton-mile" 
basis. 

The equity of Eldorado Mining and Refining Limited at December 31, 1962 amounted 
to $256,000 comprising capital stock of $28,000 and surplus of $228,000. 

The following is a comparative summary of the net expenses of the company for 
its last two financial years: 

Year ended December 31 
1962 1961 

Salaries, wages and contributions to employees' pension plan $ 251,000 $ 263,000 

Supplies 134,000 180,000 

Repairs 81,000 88,000 

Depreciation 59,000 92,000 

Insurance 50,000 63,000 

Other 64,000 63,000 

Total expenses 639,000 749,000 

Less: Miscellaneous income 30,000 10,000 

Net expenses $ 609,000 $ 739,000 



AUDITOR GENERAL'S REPORT 101 

The net expenses for 1962 were recovered from Eldorado Mining and Refining 
Limited to the extent of $494,000 and from Northern Transportation Company Limited 
to the extent of $115,000. The decreased expenses in 1962 result from a substantially 
reduced volume of service provided. Traffic in southbound air-freight, which was reduced 
in 1961 due to the shut-down of the Port Radium mine of Eldorado Mining and Refining 
Limited in 1960, was further reduced in 1962 when deliveries from the Beaverlodge mine 
near Uranium City, Saskatchewan, also fell significantly. 

146. Eldorado Mining and Refining Limited. This company was incorporated in 
1945 under the Companies Act, 1934, following expropriation by the Government of 
Canada in 1944 of the shares of a privately-owned company incorporated in 1927. The 
head office of the company is in Ottawa, the Beaverlodge mine near Uranium City, and 
the refinery and administrative offices in Port Hope, Ontario. The principal functions of 
the company are to produce, refine and sell uranium and allied products. 

Since 1948 the company has also been charged with the responsibility for the pur- 
chase and disposal of all uranium produced in Canada, although in recent years private 
producers have been free, under certain circumstances, to sell uranium without reference 
to the company. Uranium concentrates are purchased by the company, as the uranium 
procurement agent for the Crown, at various prices determined by separate agreements 
with each producer. In some cases the purchase prices are higher, and in other cases 
lower, than the prices at which the concentrates are sold to the United States Atomic 
Energy Commission and the United Kingdom Atomic Energy Authority. Although all 
purchase costs will be fully recovered before the contracts with the Commission and the 
Authority are completed, there are periods within the life of individual contracts when 
cumulative costs of concentrates sold exceed revenue from sales. During these periods, 
temporary financing is provided, as required, by the company. Charges are applied 
against the contract revenue for the company's services in administering and financing 
the ore procurement program. 

During 1962 the cost of purchased concentrates delivered to the Commission and the 
Authority of $153,444,000 exceeded the revenue from sales of $151,964,000 by $1,480,000. 
Administrative expenses and financial charges for the period amounted to $308,000. The 
resultant excess of costs and expenses over sales of $1,788,000 will be offset in future 
periods when sales will be made at prices exceeding the costs of acquisition. 

A contract dated July 30, 1962 between the company and the United Kingdom 
Atomic Energy Authority for the sale of 12,000 tons of uranium in concentrates provides 
for certain deliveries on which payments do not become due until later years of the 
contract period. The account receivable thus deferred at December 31, 1962, and amount- 
ing to $3,988,000, will increase to a maximum of almost $32,000,000 in 1965 and decline 
thereafter until it is fully paid at the end of the contract in 1973. 

The equity of the Crown in the company at December 31, 1962 amounted to 
$50,268,000, consisting of capital stock of $6,586,000 and surplus of $43,682,000. Dividends 
of $3,000,000 were paid to the Receiver General during the year, compared with $5,000,000 
paid in the preceding year. 

C99G0-3— 8* 



102 AUDITOR GENERAL'S REPORT 

The following is a summary of income and expense for the financial year 1962, in 
comparison with the preceding year: 

Year ended December 31 

1962 1961 

Income — 
Bales of uranium concentrates, uranium metal and related products, 

and revenue from refining services $26,695,000 $29,607,000 

Expense — 

Mining, refining and other expenses 12,511,000 16,032,000 

Depreciation 3,952,000 3,900,000 

Amortization of cost of acquiring rights to deliver concentrates on 

cancellation of contract with another producer 3,234,000 4,178,000 

Amortization of pre-production, mine development and other deferred 

expenditures 836,000 1,102,000 

Reduction in valuation of inventories 785,000 

20,533,000 25,997,000 

Net income from operations 6,162,000 3,610,000 

Other income 1,648,000 728,000 

7,810,000 4,338,000 

Provision for income tax 3,600,000 2,125,000 

Net income $ 4,210,000 $ 2,213,000 



Notwithstanding the continuing decline in sales of uranium concentrates — amounting 
to 83,068,000 in 1962— offset to a small degree by increased revenue of $156,000 from 
refining services and sales of special products, the reduction in expense was such that 
net income from operations increased by $2,552,000 for the year. 

In 1960 the company acquired, at a cost of $19 million, the rights of another uranium 
producer to deliver concentrates to the United States Atomic Energy Commission. This 
cost is being written off on a pro rata basis against the production remaining to be 
supplied out of the Beaverlodge mine. After amortizing $3,234,000 in 1962, the sum of 
$6,589,000 remained to be written off by 1965. 

Following the shut-down of the Port Radium mine in 1960, substantial losses on 
disposal of general, leach plant and commissary stores were considered inevitable by 
management and accordingly this inventory was reduced to a nominal value of one 
dollar by write-offs of $639,000 in 1960 and $85,000 in 1961. The inventory valuation of 
uranium metal and related products at Port Hope was reduced by write-offs of $927,000 
in 1960 and 8700.000 in 1961 to revalue these products in accordance with current market 
conditions. No further reduction was made in the value of uranium metal and related 
products inventories in 1962. 

147. Ex-port Credits Insurance Corporation. This Corporation was established in 
1944 by the Export Credits Insurance Act, R.S., c. 105, to provide insurance to Canadian 
exporters of goods and services against the risk of non-payment by foreign buyers. The 
Corporation is intended to operate on a self-sustaining basis from premiums charged on 
contracts of insurance. Where the Corporation is of the opinion that a proposed contract 
of insurance would impose upon it a liability for a term or in an amount in excess of that 



AUDITOR GENERAL'S REPORT 103 

which it would normally undertake, the Governor in Council may, pursuant to section 21 
of the Act, authorize the Corporation to enter into the proposed contract of insurance. In 
the event of a loss under this section (there has been none) the moneys required to 
discharge the liability are payable from unappropriated moneys in the Consolidated 
Revenue Fund. A 1959 amendment to the Act introduced section 21A under which the 
Corporation may, with the authority of the Governor in Council, provide financing for 
long term export sales of capital goods with funds available out of the Consolidated 
Revenue Fund. The Corporation's head office is in Ottawa with branches in Montreal 
and Toronto. 

The Crown's equity in the Corporation at December 31, 1962 was $40,520,000, 
consisting of share capital of $5,000,000, capital surplus of $5,000,000, earned surplus of 
$2,390,000 and an underwriting reserve of $5,000,000, together with advances and accrued 
interest totalling $23,130,000 in respect of long term financing of sales agreements under 
section 21A of the Act. The Corporation held Government of Canada bonds having a 
par value of $18,550,000. 

Export sales insured by the Corporation on its own account during 1962 totalled 
$96,000,000 and premiums earned amounted to $679,000. Export sales insured under 
section 21 of the Act totalled $49,000,000 and premiums amounted to $748,000 of which 
$561,000 was remitted to the Receiver General and $187,000 was retained by the Corpora- 
tion in respect of expenses and overhead, in accordance with a basis authorized by the 
Minister of Finance. At December 31, 1962 the liability of the Corporation under con- 
tracts of insurance issued and outstanding totalled $268,106,000 of which $196,354,000 
was for contracts entered into under section 21 of the Act. 

At December 31, 1962, after two years of operation in the field of direct financing 
of long term export sales of capital goods under the authority of section 21A of the Act, 
the Corporation had signed agreements to finance export sales amounting to $57,000,000, 
of which $23,000,000 had been disbursed. In addition, the Corporation had agreed in 
principle to finance $100,000,000 of prospective sales and had undertaken to guarantee 
negotiable instruments totalling $21,220,000 with respect to completed sales. 

The following is a comparative summary of operations for the Corporation's past two 
financial years : 

Year ended December 31 

1962 1961 

Income — 
Premiums and fees earned % 921,000 $ 744,000 

Expense — 

Salaries and benefits 316,000 221,000 

Rents 33,000 17,000 

Travel 21,000 15,000 

Communications expense and credit reports 19,000 16,000 

Stationery, printing and office expenses 16,000 18,000 

Other 34,000 42,000 

439,000 329,000 

482,000 415,000 



104 AUDITOR GENERAL'S REPORT 

Year ended December 31 

1962 1961 
Policyholders' claims — 

Recoveries 687,000 558,000 

Payments 164,000 163,000 

523,000 395,000 

Excess of income and net recovery on policyholders' claims over expense 1,005,000 810,000 

Add: Interest on investments 719,000 678,000 

1,724,000 1,488,000 

Deduct: Provision for income tax 828,000 741,000 

Surplus for year $ 896,000 $ 747,000 



The cost of additional staff for the Export Finance Division, formed in 1961, and for 
insurance and general administration, together with the cost for a full year of larger 
quarters occupied in September 1961, was largely responsible for the increase of $110,000 
in the Corporation's expenses during the 1962 financial year. 

The following is a summary of transactions during the year in respect of payments 
of policyholders' claims for losses: 

Outstanding Claims Amounts Written Outstanding 

Type of claim Jan. 1, 1962 paid recovered off Dec. 31, 1962 

Insolvency $ 268,000 $ 8,000 $ 2,000 $ 76,000 S 198,000 

Default 354,000 150,000 129,000 76,000 299,000 

Exchange transfer 1,482,000 556,000 (56,000) 982,000 

Other 1,000 6,000 6,000 1,000 



S 2,105,000 S 164,000 S 687,000 S 102,000 $ 1,480,000 



Of the amount of SI, 480,000 in claim payments shown above as outstanding at 
December 31, 1962, the Corporation anticipates making substantial recoveries, particu- 
larly in respect of those claims, amounting to 8982,000, which were paid because of 
exchange transfer difficulties in the buyers' countries. The amounts to be recovered will 
be added to Income in the years in which the recoveries are effected. 

148. Farm Credit Corporation. This Corporation was established in 1959 by the 
Farm Credit Act, 1959, c. 43, to succeed the Canadian Farm Loan Board which had 
operated since 1929. The purpose of the Corporation is to make, administer and supervise 
long term mortgage loans to farmers. The head office is in Ottawa and there are seven 
branches and 127 field offices throughout Canada. 

During the year under review the Government of Canada paid the Corporation 
$2,250,000 to increase its capital investment, and advanced a further $56,747,000 (net) 



AUDITOR GENERAL'S REPORT 105 

by way of loans. At March 31, 1963 the equity of the Government in the Corporation 
amounted to $278,158,000, comprising: capital, $10,350,000; loans, $258,618,000; accrued 
interest on loans, $7,519,000; and reserve for losses, $1,671,000. 

During the year, 6,453 loans (6,027 in 1961-62) were disbursed to farmers to a total 
of $78,428,000 ($68,887,000 in 1961-62) and repayments amounted to $20,287,000 
($15,197,000 in 1961-62). Loans outstanding at the year-end, including accrued interest, 
amounted to $277,485,000 compared with $217,898,000 at the end of the previous year. 

The following is a comparative summary of the income and expense of the Corpora- 
tion for the past two years: 

Year ended March 31 

1963 1962 

Income — 

Interest earnings $11,806,000 $9,152,000 

Deduct: Interest on loans from the Government of Canada 10,200,000 7,867,000 

1,606,000 1,285,000 

Appraisal, supervision and legal fees 500,000 406,000 

2,106,000 1,691,000 

Expense — 

Salaries and employee benefits 2,427,000 1,817,000 

Travel 277,000 216,000 

Office accommodation 212,000 129,000 

Printing, stationery and office supplies 80,000 80,000 

Postage, express, telephone and telegraph 78,000 59,000 

Fees and expenses of part-time appraisers 21,000 91,000 

Depreciation 36,000 31,000 

Other 55,000 44,000 

3,186,000 2,467,000 

Net loss carried to reserve for losses $ 1,080,000 $ 776,000 



The increase of $719,000 in expense for the year ended March 31, 1963 resulted 
largely from the continued growth in lending activity and the consequent expansion of 
the Corporation which has resulted in an increase in staff from 183 at March 31, 1960 
to 388 at March 31, 1962 and 468 at March 31, 1963. 

In my report under section 87 of the Financial Administration Act, on the examina- 
tion of the accounts of the Corporation for the year ended March 31, 1963. reference 
was made to the reduction in the Reserve for Losses during the past three years, due in 
part to the statutory obligation placed on the Corporation to lend money at a fixed rate, 
as follows: 

Section 15 of the Farm Credit Act requires the Corporation to establish a Reserve out 
of which may be paid "any losses sustained by the Corporation in the conduct of its 



106 AUDITOR GENERAL'S REPORT 

business". The section further provides that the Corporation shall credit its net earnings 
each year to this Reserve until the amount of the Reserve equals the capital of the 
Corporation, which amounted to $10,350,000 at March 31, 1963. In the years up to March 
31, I960, the Reserve for Losses had beeen built up to an amount of $3,749,000, including 
$3,4S6,000 accumulated by the predecessor corporation (Canadian 1 arm Loan Board) to 
March 31, 1959. 

The operations of the Corporation over the past three years have resulted in net losses 
aggregating $2,078,000 which have reduced the balance of the Reserve to $1,671,000 at 
.March 31, 1963. These losses are due in part to the Corporation being required to pay a 
higher rate of interest on $42,300,000 borrowed from the Government of Canada than the 
rate of 5% charged, under section 16 of the Act, on loans to farmers. 

An amount of $11,500,000 borrowed at 5£% during the year brings to $107,800,000 the 
total of amounts which have been borrowed at interest rates of 5% ($65,500,000), 5£% 
($11,500,000) and 5$% ($30,800,000) since April 1, 1959 and loaned to farmers at the statu- 
tory interest rate of 5%. In addition to a direct interest loss in excess of $3,000,000 during 
the repayment period, on the $42,300,000 borrowed at 5£% an d 5|%, these interest rates 
provide no margin to cover administrative expenses and losses on loans. 

Since further annual operating losses appear to be in prospect, consideration should 
be given to means whereby these losses may be covered without further depleting the 
Reserve, as well as to the manner in which the Reserve can be brought up to the equivalent 
of the capital of the Corporation as contemplated by section 15 of the Act. 

149. The National Battlefields Commission. This Commission, which was constituted 
by the National Battlefields at Quebec Act, 1908, c. c. 57 and 58, with the object of 
acquiring and preserving the historic battlefields at Quebec, comprises nine members, 
seven of whom are appointed by the Governor in Council and one by the governments 
of each of the provinces of Ontario and Quebec. 

Prior to 1958 the Commission was financed by statutory grants made from time to 
time under the constituting Act but, since then, the Commission has been financed by 
annual parliamentary appropriations. At March 31, 1963 the proprietary equity of the 
Crown in the Commission amounted to $1,482,000 represented by an investment of 
$1,465,000 in capital assets and $17,000 in working capital. The increase of $21,000 over 
the equity at March 31, 1962 is accounted for by increases of $20,000 in capital assets 
and $1,000 in working capital during the year. 

The following is a summary of the expenses for the year under review compared 
with those of the preceding year: 

Year ended March 31 
1963 1962 

Salaries, wages and related expenses $ 151,000 S 151,000 

Repairs of roads and driveways 21,000 — 

Policing services 

Operating supplies and nursery stock 

Heat, light and power 

Other expenses 



Capital outlays 



14,000 

10,000 

10,000 

6,000 


12,000 

10,000 

10,000 

7,000 


212,000 
21,000 


190,000 
24,000 


S 233,000 


$ 214,000 



AUDITOR GENERAL'S REPORT 107 

The expenditure of $21,000 for repairs of roads and driveways represents the cost 
of patching and paving sections of the avenues within the park. No repairs of this nature 
had been undertaken since 1949. 

The expenses of the Commission during the year under review, shown above in the 
amount of $233,000, were financed to the extent of $214,000 by parliamentary appropria- 
tions and $19,000 by Governor General's special warrant. 

Funds contributed by provincial governments, municipalities and others in the years 
following the establishment of the Commission in 1908, which may be used only for the 
acquisition of land, with prior parliamentary approval, amounted to $29,000 at March 31, 
1963. The only change in the balance of this account over the past thirty years has been 
the increase arising out of investment earnings. 

150. National Capital Commission. This Commission was established by the National 
Capital Act, 1958, c. 37, to succeed the Federal District Commission which had been 
established in 1927 as the successor to the Ottawa Improvement Commission, 1899. 

The objects and purposes of the Commission under the Act are "to prepare plans 
for and assist in the development, conservation and improvement of the National Capital 
Region in order that the nature and character of the seat of the Government of Canada 
may be in accordance with its national significance". Subject to the control exercised by 
the Governor in Council, the Commission has wide powers including those relating to: 
acquisition and development of property; construction and maintenance of parks, roads, 
bridges, buildings and other works; undertaking joint projects with municipalities or 
making grants to municipalities; construction and operation of concessions; and the 
administration of historic buildings and sites. The Commission consists of 20 members 
appointed by the Governor in Council from across Canada. 

The proprietary interest of the Government of Canada in the Commission, including 
loans, at March 31, 1963 totalled $83,084,000 represented by: cash, $1,230,000; inven- 
tories of tools, equipment and supplies, $243,000; payments for land purchases under 
negotiation, $6,016,000; and cost of capital assets, $75,595,000. 

The Commission's activities are financed by annual parliamentary appropriations, 
drawings from the National Capital Fund and loans from the Government of Canada, 
along with incidental revenues from rentals, etc. A summary of the expenditure and other 
transactions for the past two years is as follows: 

Year ended March 31 

1963 1962 

Operation and maintenance of parks, parkways and grounds adjoining 
Government buildings at Ottawa and Hull and general administration 

Expenditures $ 3,131,000 $ 2,579,000 

Provided for by: 

Parliamentary appropriations $ 2,905,000 $ 2,317,000 

Revenue 226,000 262,000 

$ 3,131,000 $ 2,579,000 



108 AUDITOR GENERAL'S REPORT 

Year ended March 31 
1963 1962 

National Capital Fund 

Balance of Fund in hands of Commission at beginning of year $ 302,000 $ 1,000 

Add: 
Amounts drawn from Fund provided by parliamentary appropria- 
tions 5,500,000 4,250,000 

Proceeds from sales of property 120,000 682,000 

5,620,000 4,932,000 

5,922,000 4,933,000 

Deduct: 

Capital outlays for parks, parkways, railway lines and structures 3,367,000 2,968,000 

Repayment of loans to acquire property now in use — Queensway — 345,000 

Maintenance of land and rehabilitation works 81,000 112,000 

Contributions to the City of Ottawa and other municipalities to- 
wards the cost of constructing roads, bridges, sewers, etc 2,732,000 1,206,000 

6,180,000 4,631,000 

Balance of Fund in hands of Commission at March 31, 1962 $ 302,000 

Amount due from National Capital Fund at March 31, 1963 S 258,000 

Acquisition of property in the National Capital Region through loans 
provided by the Government of Canada 

Unexpended balance of loans at beginning of year $ 901,000 $ 684,000 

Add: 

Government of Canada loans (net) 9,428,000 6,247,000 

Proceeds from sales of property 372,000 3,553,000 

9,800,000 9£00,000 

10,701,000 10,484,000 

Deduct : 

Expenditures for acquisition of property 9,471,000 9,583,000 

Unexpended balance of loans at end of year S 1,230,000 $ 901,000 

Interest charges on outstanding Government of Canada loans 
Interest on loans $ 1,776,000 S 1,505,000 

Provided for by: 

Parliamentary appropriation $ 1,475,000 S 1,304,000 

Net revenue from rentals of property and interest earnings 301,000 201,000 

$ 1,776,000 $ 1,505,000 



AUDITOR GENERAL'S REPORT 109 

The expenditures incurred in the various activities of the Commission, as summarized 
above, totalled $20,558,000 during the year compared with $18,298,000 in the preceding 
year and were financed as follows: 

Year ended March 31 
1963 1962 

Parliamentary appropriations $10,440,000 $ 7,570,000 

Loans to the Commission 9,099,000 6,030,000 

Proceeds from sales of property 492,000 4,235,000 

Revenues of the Commission 527,000 463,000 



$20,558,000 $18,298,000 



In paragraph 59 of this Report, reference is made to loan interest paid by the 
Commission out of funds provided by means of annual parliamentary appropriations. 

151. National Centennial Administration. The National Centennial Administration 
was established by the National Centennial Act, 1961, c. 60, the objects being to promote 
interest in, and to plan and implement programs and projects relating to, the Centennial 
of Confederation in Canada. The Administration consists of a Commissioner, a Deputy 
Commissioner and eight directors, all appointed by the Governor in Council, and opera- 
tions are conducted from a head office in Ottawa. 

Section 10 of the Act directs that there shall be a special account in the Consolidated 
Revenue Fund, to be known as the National Centennial Fund, to which there shall be 
credited the amounts appropriated by Parliament for the purposes of the Fund. The 
Minister of Finance may, on the recommendation of the President of the Queen's Privy 
Council for Canada, pay to the Administration out of the Consolidated Revenue Fund 
"such amounts as are from time to time required for the purpose of making grants to 
any province, or to any organization the objects of which are similar to the objects of the 
Administration, for the observance of the Centennial of Confederation in Canada". The 
amounts paid by the Minister of Finance are to be charged to the Fund but a payment 
out of the Consolidated Revenue Fund may not exceed the balance standing to the credit 
of the Fund. With Privy Council Vote 55 providing for a payment of $833,333 to the 
National Centennial Fund and no payments having been made out of the Fund, a balance 
of $833,333 was carried at the credit of the National Centennial Fund at March 31, 1963. 
Special Appropriation Act, 1963, which was given Royal Assent on July 22, 1963, provided 
for the payment of $1,000,000 to the Fund in respect of the year ended March 31, 1963. 
Accordingly, an additional $166,667 was charged to Privy Council Vote 55 and credited 
to the Fund as at March 31, 1963. 

Section 11 of the Act provides that all expenditures of the Administration, other 
than grants made out of the National Centennial Fund, shall be made out of moneys 
appropriated by Parliament therefor. The expenses for the period from the establishment 
of the Administration on September 29, 1961 to March 31, 1963 comprised $275,000 for 
two grants and $22,000 for administrative expenses. The grants were made pursuant to 



110 AUDITOR GENERALS REPORT 

the provisions of section 9 of the Act which provides that the Administration may, subject 
to the approval of the Governor in Council, engage in joint projects with, or make 
grants to, any province or organization with objects similar to those of the Administra- 
tion. The administrative expenses did not include the value of office accommodation and 
accounting services provided by government departments. 

152. National Harbours Board. This Board was established in 1936 by the National 
Harbours Board Act, now R.S., c. 187, and has jurisdiction over the harbours of Halifax, 
Saint John, Chicoutimi, Quebec, Three Rivers, Montreal (including the Jacques Cartier 
and Champlain Bridges), Vancouver and Churchill, together with the grain elevators at 
Prescott and Port Colborne. The head office of the Board is in Ottawa. 

The proprietary equity of the Government of Canada at December 31, 1962, as 
shown on the Board's balance sheet, totalled $463,766,000, made up of: assets transferred 
to the Board on its establishment and subsequently, 856,917,000; loans and advances, 
S308,882,000; interest in arrears on loans and advances, $71,290,000; and reserves, 
8100,037,000; less the accumulated deficit of $73,360,000. 

There was a net increase of $17,945,000 during the year in the outstanding loans and 
advances. The following summary shows the changes in this account: 

Balance, January 1, 1962 8 290,937,000 

Add: 

Loans during year, secured by certificates of indebtedness $ 18,816,000 

Advances 150,000 18,966,000 

309,903,000 
Less : Repayments during year 1,021,000 

Balance, December 31, 1962 8 308,882,000 



The interest in arrears on loans increased by $6,504,000 during the year, representing 
credits to the proprietary equity of $10,059,000 (with offsetting charges to expenditure) 
less payments to the Receiver General of $3,555,000. There has been a steady increase 
over the past five years in the outstanding interest in arrears on loans, as follows: 

December 31, 1958 $49,315,000 

December 31, 1959 54,011,000 

December 31, 1960 59,008,000 

December 31, 1961 64,786,000 

December 31, 1962 71,290,000 

In previous Reports it was observed that there appears little prospect of the Board being 
in a position to meet its principal and interest obligations and it was recommended that 
consideration be given to reconstituting the Board's financial structure on a more 
realistic basis. 



AUDITOR GENERAL'S REPORT 111 

Amounts receivable by the Board at the year-end included $112,000 due from the 
Quebec Natural Gas Corporation for rental charges by the Board for an easement for a 
20-inch natural gas pipeline on the Jacques Cartier Bridge. The amount represents the 
sum of $56,000 which was outstanding on December 31, 1961 plus a charge of the same 
amount for 1962, no payment having been received during the year. Authority for 
installation of the pipeline was granted by the Board on May 1, 1959 subject to later 
negotiation of the annual rental rate, but after installation of the pipeline the corporation 
would not agree to the rental rate proposed by the Board and requested the Board to 
consider a rental rate that would be little more than nominal. No agreement was reached 
during the year under review with respect to the rate to be charged. 

The Jacques Cartier Bridge was operated, until revocation of tolls on June 1, 1962, 
under a tri-partite agreement, a provision of which required the City of Montreal and 
the Province of Quebec each to pay to the Board one-third of any annual deficit arising 
from the operations of the Bridge, to a maximum of $150,000. In 1944 the Province 
refused to make its required contribution and as of the end of 1949 its accumulated 
indebtedness amounted to $744,425. The Bridge has not incurred an operating deficit 
since 1949 and the accounts of the Board continue to show this sum as the amount due 
from the Province. The settlement of this claim and the transfer of the Bridge to the 
Province have been subjects of recent negotiation between the Board and the Province. 

As observed in previous Reports, the Board has been involved in a dispute with the 
Canadian Pacific Railway regarding the ownership of certain areas at Coal Harbour, 
Vancouver, since the Board's establishment in 1936 (being a continuation of a dispute 
between the Board's predecessor and the Railway Company since 1880). Pending settle- 
ment of the matter, the C.P.R. collects rental and other revenue from certain areas in 
possession of the Company, while the Harbour authorities do likewise in respect of 
certain areas which the Board has occupied. At December 31, 1962 the Board was holding 
$139,800 in cash and securities in a special account, while the C.P.R. was holding 
$220,000 in an escrow account. No progress was made towards settlement of the dispute 
during the year. 

The following is a summary of the operations of the Board for its past two financial 
years : 

Year ended December 31 

1962 1961 

Operating income — 

Harbours $ 3,184,000 $ 3,243,000 

Wharves and piers 9,267,000 9,366,000 

Grain elevator systems 7,539,000 7,739,000 

Cold storage systems 1,130,000 1,172,000 

Permanent sheds 2,023,000 1,843,000 

Railway systems 705,000 731,000 

Jacques Cartier Bridge 1,494,000 3,498,000 

Champlain Bridge 163,000 — 

Miscellaneous services 1,213,000 1,426,000 

26,718,000 29,018,000 



112 AUDITOR GENERALS REPORT 

Year ended December 31 

1962 1961 

Operating and administrative expenses — 

Harbours 3,870,000 3,775,000 

Wharves and piers 1,186,000 871,000 

Grain elevator systems 5,235,000 5,416,000 

Cold storage systems 1,173,000 1,141,000 

Permanent sheds 1,485,000 1,378,000 

Railway systems 1,103,000 1,119,000 

Jacques Cartier Bridge 426,000 694,000 

Champlain Bridge 155,000 — 

Miscellaneous services 1,460,000 1,645,000 

Administrative expenses 2,259,000 2,004,000 

18,352,000 18,043,000 

Net operating income 8,366,000 10,975,000 

Other income — 

Income from investments 2,475,000 2,520,000 

Miscellaneous 202,000 170,000 

11,043,000 13,665,000 

Special charges — 

Provision for interest on loans and advances 9,464,000 8,759,000 

Provision for replacement of capital assets 4,493,000 4,349,000 

Other special charges 664,000 555,000 

14,621,000 13,663,000 

Net loss or (profit) S 3.578,000 ($ 2,000) 



As previously noted, all tolls and charges assessable in respect of the passage of 
vehicles over the Jacques Cartier Bridge were revoked, effective June 1, 1962 in 
accordance with Order in Council P.C. 1962-792 of May 28, 1962, and this accounts for 
the decrease in revenue of $2,004,000 from this source. The Champlain Bridge was 
opened to traffic on June 29, 1962 and is being operated as a toll bridge. 

The increases in operating expenses for harbours and wharves and piers are largely 
explained by repairs of a nature which do not normally occur annually. At Quebec, major 
repairs and reconstruction of a quay wall amounted to $144,000 and, at Montreal, repairs 
to a wharf amounted to $156,000. 

Prevailing rate employees of the Board, after a period of satisfactory service, become 
eligible to be contributors under the Public Service Superannuation Act, retroactive to 



AUDITOR GENERAL'S REPORT 113 

date of commencement of employment. In such cases it becomes necessary for the Board 
to contribute to the Public Service Superannuation Account an amount equal to the 
sum contributed by relevant employees for service prior to the date of eligibility. A large 
number of prevailing rate employees at Montreal will become eligible to so contribute 
during 1963 and, accordingly, the sum of SI 11,000 was charged in the accounts as a 
provision for the estimated liability for contributions which will then be required to be 
made by the Board in respect of prior service. This provision, plus an upward adjustment 
in salaries of permanent employees, largely explains the increase in administrative 
expenses during the year ended December 31, 1962. 

153. Northern Canada Power Commission. This Commission, which was established 
in 1948 and operates under the Northern Canada Power Commission Act, 1956, c. 44, 
consists of three members appointed by the Governor in Council and has its head office 
in Ottawa. The objects of the Commission are to construct and operate electric power 
plants and to supply power to mines and other users in the Northwest Territories and 
the Yukon Territory and, with the approval of the Governor in Council, in any other 
part of Canada. Hydro-electric plants are operated at Snare River, N.W.T. and at Mayo 
River and Whitehorse Rapids, Y.T. and thermal-electric stations are in operation at 
Fort Resolution, Fort Smith, Fort Simpson, Inuvik, Fort McPherson and Frobisher Bay, 
N.W.T. and at Field, B.C. 

The proprietary equity of the Government of Canada, as shown on the Commission's 
balance sheet at March 31, 1963 was as follows: 

March 31 

1963 1962 

Advances: 

Under section 14 of the Act — for investigation of projects $ 50,000 $ 50,000 

Under section 15 of the Act — for capital expenditures, including 
accrued interest 18,960,000 19,104,000 

Equity represented by depreciated value of public utilities at Inuvik, 
N.W.T., financed by advances under section 15 of the Act recoverable 
from funds to be appropriated by Parliament according to Order in 
in Council P.C. 1957-36/626 of May 3, 1957 6,513,000 6,759,000 

Reserve for contingencies pursuant to section 10 of the Act 1,601,000 1,611,000 

Reserve for extension, expansion and improvements, equivalent to ex- 
penditures incurred on acquisition of capital assets, as permitted 
under section 22 of the Act 242,000 228,000 

Surplus, per Statement of Surplus 856,000 913,000 



$28,222,000 $28,665,000 



Subsequent to the fiscal year-end, Special Appropriation Act, 1963 (Vote 119) 
authorized the write-off of the advances made to the Commission for the construction 
and installation of the public utilities at Inuvik, N.W.T., thus permitting a corresponding 
elimination from proprietary equity in the Commission's accounts. 



114 AUDITOR GENERAL'S REPORT 

The Commission acts as agent for the Government of Canada in respect of loans 
made under the Atlantic Provinces Power Development Act, 1957-58, c. 25, and, in this 
capacity, advances are made to the provincial power commissions of Nova Scotia, New 
Brunswick and Newfoundland. As of March 31, 1963 these outstanding loans totalled 
$23,170,000, of which $5,861,000 was added during 1962-63. 

A summary of the income and expense of the Commission for the past two years 
follows : 

Year ended March 31 



Income — 

Sales of power $ 2,798,000 

Income arising from construction, maintenance and operation of 



facilities for government departments and others 

Sale of steam and water heat 

Miscellaneous 



1963 


1962 


2,798,000 


$ 3,036,000 


568,000 


471,000 


365,000 


375,000 


123,000 


106,000 



3,854,000 3,988,000 



Expense — 

Operating and maintenance 2,135,000 1,823,000 

Administrative 236,000 227,000 

Interest on advances from the Government of Canada 757,000 775,000 

Provision for depreciation (equivalent to repayment of principal of 

advances from the Government of Canada) 498,000 494,000 



3,626,000 3,319,000 



Net income $ 228,000 $ 669,000 



During the year the rates charged for electric power were reduced and there was a 
decrease of approximately $484,000 from the preceding year in the revenue from sales 
of power attributable to the lower rates. However, consumer demand for electric power 
continued to rise and the decline in revenue resulting from the lower rates was offset to 
the extent of $247,000 by revenue from increased consumption. 

154. Northern Ontario Pipe Line Crown Corporation. This Corporation was 
established by the Northern Ontario Pipe Line Crown Corporation Act, 1956, c. 10, for 
the purpose of constructing the Northern Ontario section of the all-Canadian gas pipe 
line and leasing it (subject to approval by the Governor in Council) to Trans-Canada 
Pipe Lines Limited, with an option to purchase. 

In October 1958 the Corporation entered into an agreement to lease the Northern 
Ontario section to Trans-Canada Pipe Lines Limited for a period of 25 years, with an 
option to purchase the facilities, exercisable within the period of the lease agreement. 






AUDITOR GENERAL'S REPORT 115 

Under the terms of the lease, all expenses of operation, repairs and maintenance, taxes 
and other expenses of upkeep were borne by the lessee. 

Section 6 of the Act enabled the Corporation to borrow, from the Government of 
Canada or otherwise, the funds necessary for the construction of the facilities, provided 
that the borrowings outstanding at any time did not exceed SI 30 million. Borrowings 
under this section were solely from the Government and were covered by demand notes 
bearing interest at the rate of 3^% per annum. At December 31, 1962, $113,137,000 was 
outstanding, a decrease of $7,843,000 from the preceding year, being the net result of 
additional loans of $1,545,000 and repayments of $9,388,000. 

The capital cost of the Northern Ontario section at December 31, 1962 amounted to 
$129,866,000, comprising assets acquired of $119,873,000 and engineering, administrative 
and financing expenses of $9,993,000. 

The Corporation's accumulated surplus increased by $118,000, from $365,000 at 
January 1, 1962 to $483,000 at December 31, 1962. This increase was accounted for by 
the excess of interest earned in accordance with the lease agreement, $4,205,000, over 
the interest of $4,087,000 paid on borrowings from the Government of Canada. 

A footnote to the Corporation's balance sheet at December 31, 1962 stated that 
Trans-Canada Pipe Lines Limited had indicated its intent to exercise the option to 
purchase the Northern Ontario section in 1963. This option has since been exercised 
and the purchase was completed on May 29, 1963 whereupon the Corporation discharged 
its liability for the amount then due to the Government of Canada for outstanding 
loans and interest accrued thereon. In accordance with the terms of sale, Trans-Canada 
Pipe Lines Limited assumed responsibility for the negotiation and settlement of all 
claims then outstanding and any other claims which may arise in the future. 

155. Northern Transportation Company Limited. This Company is a wholly-owned 
subsidiary of Eldorado Mining and Refining Limited. Northern Transportation (1947) 
Limited was incorporated under the Companies Act, 1934, to take over the business and 
undertaking of a predecessor company which had been incorporated under a Province of 
Alberta charter in 1935 and whose shares had been acquired when the capital stock 
of Eldorado Mining and Refining Limited was expropriated by the Government in 1944. 
The corporate name was changed to Northern Transportation Company Limited in 1952. 
Although the Company is authorized by its letters patent to carry on a general transpor- 
tation business by land and water throughout Canada and elsewhere, its activities, 
directed from administrative headquarters in Edmonton, have been almost wholly 
confined to the Mackenzie River water system and the adjacent area of the Arctic Ocean. 

The equity of Eldorado Mining and Refining Limited at December 31, 1962 was 
$6,159,000, comprising capital stock of $152,000, surplus of $4,757,000 and a reserve for 
insurance of $1,250,000. The reserve for insurance was increased by $750,000 during the 
year under review by a transfer of this amount from surplus in accordance with a 
resolution of the Board of Directors to discontinue all physical damage insurance 
coverage with commercial companies by June 30, 1962. The reserve is fully invested in 
short-term bank deposits. 



116 AUDITOR GENERAL'S REPORT 

The following is a comparative summary of the operating results of the company 
for its last two financial years: 

Year ended December 31 

1962 1961 

Income — 

Freight earnings $ 2,233,000 $ 2,583,000 

Expense — 

Operating 1,265,000 1,361,000 

Depreciation 488,000 527,000 

Administrative 240,000 222,000 

1,993,000 2,110,000 

Net income from operations 240,000 473,000 

Miscellaneous income 142,000 93,000 

382,000 566,000 

Provision for income tax 250,000 312,000 

Net income $ 132,000 $ 254,000 



The decline in freight earnings which began in 1959 continued during the year 
ended December 31, 1962 with a decrease of $350,000, mainly due to reduced traffic 
caused by the curtailment of uranium production at the Beaverlodge mine of Eldorado 
Mining and Refining Limited. The reduction of $96,000 in operating expenses reflected 
the decreased level of operating activity, as well as a continuation of the cost reduction 
nolicy put into effect last year. 

156. Park Steamship Company Limited. This Company, incorporated in 1942 under 
the Companies Act, 1934 for the purpose of supervising the operation of Crown-owned 
cargo vessels, ceased operations when the "Park" fleet was sold in 1946-47. Its current 
activities are limited to the settlement of occasional claims for compensation by seamen 
for injuries that had been sustained during the operating period, and these activities 
are attended to by staff of the Canadian Maritime Commission. 

157. Polymer Corporation Limited and subsidiary companies. Polymer Corporation 
Limited was incorporated in 1942 under the Companies Act, 1934 pursuant to the 
provisions of section 6 of the Department of Munitions and Supply Act, 1939, c. 3 as 
amended by 1940, c. 31. At December 31, 1962 there were three wholly-owned subsidiary 
companies: Polysar Belgium S.A., Polysar Nederland N.V., and Polysar International 
S.A., as well as one subsidiary. Polymer Corporation (SAF) in which Polymer held a 
95% equity and the Banque de Paris et des Pays-Bas the remaining 5%. Polymer 
Corporation (SAF) was incorporated under the laws of France in January 1961 and in 
the fall of 1962 its special purpose rubber plant located near Strasbourg commenced 
operations, although output to the end of the year was nominal. Polysar Belgium S.A. 



AUDITOR GENERAL'S REPORT 117 

was formed under the laws of Belgium in December 1961 and construction of a butyl 
rubber plant near Antwerp began in 1962. Polysar Nederland N.V., which is a holding 
company, was incorporated in accordance with the laws of Holland in May 1962. Polysar 
International S.A., with headquarters in Fribourg, Switzerland and branch offices in 
Vienna, London, Tokyo and Mexico City, was incorporated under Swiss law in June 1962 
for the purpose of marketing all Polymer products outside of North America. The parent 
company produces synthetic rubbers and chemicals at Sarnia where the head office is also 
situated. 

The equity of the Crown in Polymer Corporation Limited and its subsidiary com- 
panies at the year-end amounted to $79,105,000, consisting of capital stock of $30,000,000 
and retained earnings of $49,105,000. During the year under review dividends of 
$3,000,000 were paid to the Receiver General, the same amount as in the previous year. 

The results of operations for the past two years are set out in the summary which 
follows. Since none of the subsidiary companies had commenced operations by 
December 31, 1961 and only one had begun full-scale operations by December 31, 1962, 
the amounts shown for 1961 are with respect to the operations of the parent company 
only, and the amounts shown for 1962 include, in addition, only the operating results 
of the one subsidiary for the period from September 1 to December 31, 1962. 

Year ended December 31 
1962 1961 

Sales $87,022,000 $87,679,000 

Other income 435,000 835,000 

87,457,000 88,514,000 

Cost of sales 63,634,000 64,308,000 

Selling, administrative and research expenses 4,774,000 4,144,000 

68,408,000 68,452,000 

Net income before provision for income tax 19,049,000 20,062,000 

Provision for income tax 8,765,000 9,842,000 

Net income $10,284,000 $10,220,000 



Additions to fixed assets during the year, amounting to $23,517,000, were almost 
equally divided between the costs of the capital development program of the subsidiary 
companies and the costs of the expansion of the parent company plant at Sarnia. The 
managements of the several companies estimate that continuation of the capital develop- 
ment program will involve expenditures totalling $21,000,000 during the year ending 
December 31, 1963. 

In computing taxable income for the years 1961 and 1962 the company took 
advantage of capital cost allowances permitted under the Income Tax Act which were 
in excess of depreciation charged in the accounts. The effect of this procedure was to 



118 AUDITOR GENERAL'S REPORT 

defer payment of income tax totalling $3,460,000 until future years when depreciation 
charges may be in excess of capital cost allowances. 

To finance construction of their plants in France and Belgium, Polymer Corporation 
(SAF) borrowed NF 35.600.000 ($7,817,200) repayable 1965-71, and Polysar Belgium 
S.A. negotiated a loan of BF 450.000.000 ($9,729,729), repayable 1969-77. No funds were 
drawn down by Polysar Belgium S.A. under its loan during 1962. With the exception of 
NF 15.2S0.000 ($3,354,900), the loans are guaranteed by the parent company and all are 
repayable in the currency in which they were obtained. 

158. The St. Lawrence Seaway Authority. Established by the St. Lawrence Seaway 
Authority Act, R.S., c. 242 (proclaimed July 1, 1954) the Authority maintains and 
operates the Canadian section of the 27 foot waterway between the Port of Montreal and 
Lake Erie. The section of the Seaway in the United States is operated by the Saint 
Lawrence Seaway Development Corporation. In accordance with an agreement made in 
1959 between Canada and the United States, revenues from tolls are divided between 
the two Seaway entities in proportion to their annual costs of operation and maintenance, 
interest charges and repayment of loans. The Authority also operates non-toll canals at 
Lachine, Cornwall and Sault Ste. Marie, the net operating cost being provided for by 
annual parliamentary appropriations. 

The Authority is a corporation consisting of a President and two other Members as 
provided by the Act. Its head office is at Ottawa, with operating headquarters at Cornwall 
and regional headquarters at St. Lambert, Cornwall and St. Catharines. 

The Crown's equity at December 31, 1962 is shown on the Authority's balance 
sheet as follows: 

Capital assets transferred from Department of Transport, April 1, 1959 (including 

Wdland Ship Canal at a value of $130,717,000) $ 180,483,000 

Loans under section 25 of the Act 334,500,000 

Interest on loans — deferred 49,388,000 

564,371,000 
Deduct : Deficit 37,934,000 

$526,437,000 



The following is a summary of the income and expense of the Authority for its past 
two financial years: 

Year ended December 31 

1962 1961 

Income — 

Tolls $ 9,556,000 $ 9,548,000 

Net income from operation of Cornwall-Rooseveltown International 

Bridge 121,000 — 

Other 1,015,000 899,000 

10,692,000 10,447,000 



AUDITOR GENERAL'S REPORT 

Year ended December 31 

1962 1961 

Expense — 

Operating expense 2,592,000 2,602,000 

Maintenance expense 2,087,000 1,728,000 

Operating and maintenance supervision 1,232,000 1,071,000 

Administrative expense 1,760,000 1,617,000 

7,671,000 7fil8,000 
Deduct : Portion of supervision and administrative expense applicable 

to non-toll canals 324,000 288,000 

7,347,000 6,730,000 

Net operating income before providing for interest and for replacement 

of machinery and equipment 3,345,000 3,717,000 

Interest on loans from the Government of Canada 15,397,000 13,793,000 

Interest on contractors' claims and other accounts 164,000 — 

Provision for replacement of machinery and equipment 888,000 200,000 

16,449,000 13,993,000 

Net loss $13,104,000 $10,276,000 



119 



Income for the year was adversely affected by the Government's decision to suspend 
tolls for the transit of the Welland Canal, effective July 18, 1962. According to statistical 
records, this suspension of tolls resulted in a loss of revenue of $953,000 during the 
remainder of the year. 

The extent by which revenues in 1962 fell short of meeting expenses in each of the 
two sections of the waterway and of the North Channel Bridge is shown in the following 
summary : 

St. Lawrence North 

River Welland Channel 

Section Canal Bridge Total 

Tolls $8,914,000 $ 642,000 $ — $9,556,000 

Other income 217,000 798,000 121,000* 1,136,000 

9,131,000 1,440,000 121,000 10,692,000 

Expenses of operation, maintenance and 
administration 2,931,000 4,416,000 7.347,000 

Net operating profit (loss) 6,200,000 (2,976,000) 121,000 3,345,000 

Interest on loans 13,397,000 1,795,000 205,000 15,397,000 

Interest^other 153,000 11,000 — 164,000 

Provision for replacement of machinery 

and equipment 503,000 379,000 6,000 888,000 

14,053,000 2,185,000 211,000 16,449,000 

Net loss $7,853,000 $5,161,000 $ 90,000 $13,104,000 

♦Excess of income over oDeratine expense for the period from July 3 to December 31, 1962. 



120 AUDITOR GENERAL'S REPORT 

On the St. Lawrence River section the net operating profit of $6,200,000 compares with 
profits of $5,893,000 in 1961, $5,178,000 in 1960 and 15,894,000 in 1959. On the Welland 

il, the net operating loss of $2,976,000 compares with losses of $2,176,000 in 1961, 
$1,726,000 in I960 and $633,000 in 1959. 

Toll revenues for four full navigation seasons have been substantially less than had 
been anticipated by the Canadian and United States toll committees in 1958, as shown 
below : 

St. Lawrence Riv< r Welland Canal 

Actual Estimated Actual 

1959 $9,301,000 S 7,105.000 $2,060,000 $1,224,000 

1960 10,789,000 7,156.000 2,215,000 1,326,000 

1961 12,277,000 8,086,000 2,369,000 1,462,000 

1962 13,765,000 8.911,000 2,575,000 642,000* 



$46,132,000 $31,261,000 $ 9.219,000 S 4,654,000 



♦Tolls for the transit of the Welland Canal were suspended as of July 18, 1962. 

The Authority and the Saint Lawrence Seaway Development Corporation are to 
report to their respective Governments in 1964 on the adequacy of the toll structure to 
provide sufficient revenue to meet their operating costs and financial obligations. In this 
connection, it has been estimated that, beginning with 1964, the Authority will require 
revenues of about $30 million each year for 46 years to meet operating costs and debt 
payments under the present financial arrangements. Tolls and other income in 1962 
amounted to only $10.7 million including $642,000 of Welland Canal tolls which, as noted 
above, were suspended in 1962. 

Section 25 of the St. Lawrence Seaway Authority Act provides that the Minister of 
Finance, with the approval of the Governor in Council, may from time to time make loans 
to the Authority. Section 13 of the Act, as amended, states that the aggregate of the 
amounts so borrowed under the Act and outstanding shall not at any time exceed 
8345,000,000. At December 31, 1962 the Authority was indebted to the Government of 
Canada in respect of loans and deferred interest in the total amount of $383,888,000, 
made up as follows: 

Loans under section 25 of the Act $ 334,500,000 

Interest to December 31, 1959— deferred 19,427,000 

Interest for the year 1961— deferred 14,289,000 

Interest for the year 1962— deferred 15,672,000 



$ 383,888 000 



Section 16 of the St. Lawrence Seaway Authority Act requires that the tolls shall 
be fair and reasonable and designed to provide a revenue sufficient to defray the cost to 



AUDITOR GENERAL'S REPORT 121 

the Authority of its operations, which costs shall include (a) payments in respect of 
interest on amounts borrowed by the Authority, (b) amounts sufficient to amortize the 
principal of amounts so borrowed over a period not exceeding fifty years, and (c) the cost 
of operating and maintaining the canals and works under the administration of the 
Authority, including all operating costs of the Authority and such reserves as may be 
approved by the Minister. Pursuant to these provisions, the original conditions under 
which loans were made to the Authority under section 25 of the Act required the pay- 
ment of interest only in the first three full years of operation (through the year ending- 
December 31, 1962) and thereafter payment of annual amounts sufficient to amortize 
over a period of 47 years (or by December 31, 2009) all loans and interest thereon. 

The terms of the Authority's financing arrangements were amended by Order in 
Council P.C. 1961-1863 of December 29, 1961 and the principal amount of loans received 
to finance construction of the Seaway, together with interest previously deferred and all 
other interest now accrued or accruing up to December 31, 1963, is now to be repaid, 
together with current interest thereon, in 46 equal annual instalments commencing 
December 31, 1964. 

In accordance with these financial arrangements, the operations for 1962 have been 
charged with interest amounting to $15,397,000 (an additional amount of $275,000 was 
included in construction costs), but this interest has not been paid and is included in the 
balance sheet as part of the Proprietary Equity. There was no charge to the year's 
operations with respect to amortization of the principal of the amounts borrowed. 

The costs of operating and maintaining the canals and works under the administra- 
tion of the Authority are defined under paragraph (c) of section 16 as including all 
operating costs of the Authority and such reserves as may be approved by the Minister. 
The Authority is of the opinion that it is not necessary to include depreciation as an 
element of operating and maintenance costs and that the amortization over the 50 year 
period of the principal of the amounts borrowed, together with interest as required by 
subsections (a) and (b), and provision for replacement of machinery and equipment as 
mentioned below, meets the requirements of the Act. Accordingly no provision for 
depreciation has been included in the costs for the year under review. 

Provision has been made during the year toward the cost of replacing machinery 
and equipment, including lock, bridge and building machinery and equipment, in the 
amount of $2,710,000, of which $1,822,000 was charged to Deficit Account, being addi- 
tional provision required for the years 1959 to 1961, and $888,000 was charged to expense 
in respect of the year ended December 31, 1962. The reserve for replacement of machinery 
and equipment, as thus augmented, amounted to $3,343,000 at December 31, 1962. No 
provision has been made in the accounts for the replacement of buildings, lock gates 
and lock and bridge structures. The Authority considers that these Seaway works can 
be maintained in working condition at all times under its maintenance program. 

The Governor in Council, by Order in Council P.C. 1963-572 of April 11, 1963 and 
pursuant to a 1956 agreement between the Canadian National Railway Company and 



122 AUDITOR GENERALS REPORT 

The St. Lawrence Seaway Authority, has determined that responsibility rests with 
The St. Lawrence Seaway Authority for the cost of installing a lift span in the Victoria 
Bridge at Montreal and of constructing an alternative bridge, containing a moveable 
span, to cany rail as well as highway traffic over the St. Lawrence Seaway. The Order 
accordingly provided that the Authority should reimburse the Canadian National Railway 
Company for its outlays of §11,753,000 on these works, together with interest thereon 
computed to December 31, 1962 in the amount of $2,228,000 and interest on the same 
amount of §11,753,000 from December 31, 1962 to the date of reimbursement. 

Because the borrowing powers of the Authority were close to their statutory limits 
of $345 million and could not cover the above-noted reimbursement of $11,753,000, the 
Governor in Council, by P.C. 1963-1140 of July 30, 1963, directed that the payment of 
the said amount be made from parliamentary appropriations for 1963-64 and that the 
matter of reimbursement by the Authority be reserved for later decision. The above 
Order in Council also provided that the interest payment to the Railway Company 
should be made from parliamentary appropriations but should not be recovered from 
the Authority as the lengthy delay in settlement of the matter could not be blamed on 
the Authority since, under the 1956 agreement, this was a matter for action by the 
Governor in Council. 

The following table summarizes the expense and income and shows the remedial 
works and capital expenditure relating to the non-toll canals operated or administered 
by the Authority for the past two years : 

Year ended December 31 

1962 1961 

Expense — 

Operating expense $ 1,086,000 $ 584,000 

Maintenance expense 940,000 749,000 

Operating and maintenance supervision 181,000 204,000 

Portion of Authority's supervision and administrative expense 
applicable to non-toll canals 324,000 288,000 

Employee benefits 107,000 111,000 

2,638,000 1,936,000 

Income from rentals, wharfage, etc 378,000 515,000 

Operating deficit 2,260,000 1,421,000 

Remedial works — municipal properties — 72,000 

Capital expenditures 76,000 318,000 

Operating deficit, remedial works and capital expenditures (recovered 

from parliamentary appropriations) S 2.336,000 $ 1,811,000 



The increase of $502,000 in operating expense during 1962 is more than accounted 
for by increased grants in lieu of municipal taxes, which amounted to $700,000 compared 
with * 12*. 000 in 1961. 



AUDITOR GENERAL'S REPORT 123 

Departmental Operating Activities 

159. Extensive trading or servicing activities are operated by a number of depart- 
ments, for example: 

Agricultural commodities stabilization activities (operated by the Agricultural Stabilization 
Board under the Department of Agriculture) ; 

Board of Grain Commissioners for Canada (under the Department of Agriculture) ; 

Canadian Government Elevators (operated by the Board of Grain Commissioners under 
the Department of Agriculture) ; 

National Film Board (reporting through the Secretary of State) ; 

Post Office activities; 

Public printing and stationery activities (under the Department of Defence Production) ; 

Royal Canadian Mint (under the Department of Finance) ; and 

Airport operations (under the Department of Transport). 

160. Reference has been made in paragraph 128 to the statutory direction contained 
in the Financial Administration Act regarding the annual financial statements to be 
prepared by Crown corporations. There is, however, no statutory direction regarding 
the preparation of financial statements in respect of trading or servicing activities 
operated by departments. Revenues arising from such activities are included in the 
Public Accounts as revenues of the departments concerned, while the expenditures that 
involve cash outlays in the year are recorded as charges against the parliamentary 
appropriations for those departments. In addition, where statutory revolving funds are 
used to acquire materials, etc., statements summarizing the transactions in the revolving- 
fund accounts are also included in the Public Accounts. In the few instances where 
financial statements showing operating results from departmental trading or servicing 
activities are included, the costs shown include only the direct costs arising from cash 
outlays by the departments concerned and do not include non-cash charges for deprecia- 
tion, interest on capital, services provided by other departments, etc. 

161. Agricultural commodities stabilization activities. The Agricultural Stabilization 
Board was established by the Agricultural Stabilization Act, 1957-58, c. 22, and has the 
responsibility of stabilizing prices of agricultural commodities at levels bearing a fair 
relationship to their cost of production. Stabilizing measures take the form of either the 
purchase of commodities at prescribed prices, or payment to producers of amounts by 
which prescribed prices exceed those determined by the Board to be the average prices at 
which commodities are currently being sold, or stabilizing payments for the benefit of 
producers. Pursuant to the Act, the Agricultural Commodities Stabilization Account was 
established in the Consolidated Revenue Fund and finances the activities of the Board, 
except for administrative expenses which are financed through annual parliamentary 
appropriations. 

69960-3—9 



124 AUDITOR GENERAL'S REPORT 

The results of the Board's operations for the year ended March 31, 1963 are sum- 
marized as follows in comparison with the corresponding amounts for the preceding year: 

Year ended March 31 

1063 1962 
Trading losses — 

Butter $45,239,000 $ 2,482,000 

Pork 7,528,000 2,017,000 

Lamb 31,000 928,000 

Cheese 1,025,000 676,000 

Other 182,000 116.000 

54,005,000 6,219,000 

Stabilization and deficiency payments — 

Milk 13,258,000 12371,000 

Sugar beets 1,983,000 1,670,000 

Eggs 663,000 15,000 

Wool 956,000 1,236,000 

Other 991,000 495,000 

17351,000 15,787,000 

Net operating loss $71,856,000 $22,006,000 






The $71,856,000 loss shown for 1962-63, recovered by Special Appropriation Act, 
1963 (Vote 163) does not include administrative expenses of $461,000 which were charged 
to the appropriation for "Agricultural Stabilization Act Administration" (Vote 40). 
Moreover, no charges are made for accounting services rendered by the Office of the 
Comptroller of the Treasury or for contributions to the Public Service Superannuation 
Account, and interest on the funds employed is not taken into consideration. 

The following is a listing of the inventories, valued at cost, held by the Board at 
March 31, 1963 in comparison with the similar inventories at the close of the preceding 
year : 

As at March 31 

1963 1962 

Butter $ 129,173,000 S 112,312,000 

Pork 10,072.000 19,383,000 

Other 266,000 1,030,000 

$ 139,511,000 $ 132,725,000 



The inventory of butter owned by the Board increased by $16,861,000 during the 
year notwithstanding a resale program under which the price of butter was reduced 
by 12 cents per pound. The cost of this program amounted to $42,273,000. Storage 
charges incurred in respect of butter which had accumulated during the years 1958 to 
1962 amounted to $4,422,000 during the year ended March 31, 1963. 

162. Board of Grain Commissioners for Canada. This Board operates under the 
authority of the Canada Grain Act, R.S., c. 25, and consists of a chief commissioner and 
two other commissioners appointed by the Governor in Council. The Board has jurisdic- 
tion to enquire into any matter relating to: grading, weighing and storage of grain; unfair 



AUDITOR GENERAL'S REPORT 125 

or discriminatory operation of any elevator; and any other matter arising out of the 
performance of the duties of the Board. 

The following is a comparative summary of the results of operations for the past 
two fiscal years : 

Year ended March 31 

1963 1962 
Expenditure — 

Salaries, allowances, etc $ 4.258,000 $ 4,286,000 

Rent 188,000 188,000 

Travel 122,000 125,000 

Printing and stationery 57,000 58,000 

General expenses 223,000 228,000 

4^48,000 4,885,000 

Revenue — 

Inspection 1,584,000 1,946,000 

Weighing 794,000 967,000 

Registrations and cancellations 44,000 54,000 

Licences 28,000 29,000 

Sundry 2,000 5,000 

2,452,000 3,001,000 

Excess of expenditure over revenue $ 2,396,000 $ 1,884,000 



Although the volume of grains handled during 1962-63 decreased considerably from 
the previous year, there was no significant decrease in the Board's expenditures since a 
large portion of these are fixed. No charges were included as expenditure of the Board 
for contributions to the Public Service Superannuation Account or for accounting and 
other services provided by government departments. 

Revenue from inspections, weighing and registrations and cancellations varies 
directly with the volume of grain handled and therefore decreased in 1962-63 compared 
with the previous year. Fees for weighing services have not been revised since 1920 and 
for inspection services since 1949. In our previous Reports reference has been made to this 
situation and last year it was observed that the Standing Committee on Public Accounts 
recommended in 1961 that "steps be taken to bring revenues and expenditures into 
balance". 1962-63 was the ninth consecutive year in which deficits exceeded one million 
dollars. 

163. Canadian Government Elevators. The Canadian Government Elevators are 
operated by the Board of Grain Commissioners for Canada under section 166 of the 
Canada Grain Act, R.S., c. 25. There are five interior elevators located at Moose Jaw, 
Saskatoon, Calgary, Edmonton and Lethbridge; and a terminal elevator at Prince 
Rupert. The terminal elevator, located at Port Arthur, which had been leased to a 
company engaged in the grain trade was sold during the year to the former lessee (see 
paragraph 47). 

The equity of the Crown in the Canadian Government Elevators at March 31, 1963 
was $10,833,000, represented by fixed assets costing $10,366,000 acquired out of funds 
provided by parliamentary appropriations together with a surplus of $467,000. 

69960-3— 9J 



126 AUDITOR GENERALS REPORT 

The following is a summary of the results of operations for the year under review 
with the comparable amounts for the preceding year: 

Year ended March 31 

1%3 1002 
Revenue — 

Storage $ 822,000 $ 1,129,000 

Elevation 157,000 484,000 

Cleaning 36,000 159,000 

Drying 1 1,000 23,000 

Other 37,000 196,000 

1.063,000 1,991,000 

Expenditure — 

Salaries and wages 785,000 889,000 

Maintenance — buildings, plant and equipment 257,000, 362,000 

Grants in lieu of taxes 1 12,000 112,000 

Power 65,000 98,000 

Other 95,000 107,000 

1,314.000 1,568,000 

Net profit or (loss) ($ 251,000) $ 423,000 



The operating revenue arises almost entirely from the handling of wheat and only 
to a minor extent from the handling of coarse grains. The sale and movement of wheat 
is the responsibility of the Canadian Wheat Board and it is to the economic advantage 
of this Board to ship all wheat direct to lakehead or tidewater ports without using 
facilities of interior elevators since, by so doing, "stop-off" and "diversion" charges are 
eliminated. When weather conditions at harvest time result in damp wheat and when 
lakehead and tidewater elevators are filled to capacity, the Board uses the drying and 
storage facilities of interior elevators. The fall of 1962 was exceptionally dry and there 
was a steady export from lakehead and tidewater terminals so that the facilities of the 
Canadian Government Elevators were not required by the Canadian Wheat Board to 
the same extent as in 1961. As a result, only 6,252,000 bushels of wheat were handled 
by the Elevators in 1962-63 compared with 25,171,000 in the previous year. This sharp 
decline in volume of wheat moving through the Elevators was largely responsible for 
the reduction in revenue. In addition, the effective date of the sale of the terminal 
elevator was August 1, 1962 so that only four months' rental was received in 1962-63. 

The decrease in volume of grain handled also resulted in decreased expenditures, 
chiefly for casual labour, maintenance and power, but did not affect fixed costs such as 
grants in lieu of taxes and head office expenses. As noted in previous years' Reports, 
expenditures do not include amortization of elevator construction costs, charges for 
contributions to the Public Service Superannuation Account, or costs of accounting 
and other services provided by government departments. 

A loss of $72,000 by the Lethbridge elevator was its eighteenth consecutive annual 
loss. The accumulated deficits during this period amounted to $690,000. 



AUDITOR GENERAL'S REPORT 127 

164. National Film Board. This Board was established in 1939 by the National 
Film Act, now R.S., c. 185, for the purpose of promoting the production and distribution 
of films in the national interest. Section 18 of the Act provides for the establishment of 
the National Film Board Operating Account in the Consolidated Revenue Fund. The 
Account is credited with amounts provided by annual parliamentary appropriations for 
"Administration, Production and Distribution of Films and Other Visual Materials" 
(National Film Board Vote 1), amounts transferred from appropriations of government 
departments in respect of work undertaken for them, and income arising from the sale 
and rental of films and other visual materials. The Account is charged with all expendi- 
tures made by the Board, other than those for the acquisition of capital equipment which 
are charged to a separate appropriation. 

The equity of the Crown in the Board at March 31, 1963 was $2,343,000 consisting of 
the balance of $581,000 in the National Film Board Operating Account for working 
capital together with an investment of $1,762,000 represented by the depreciated value 
of equipment transferred to the Board at its inception or purchased out of funds provided 
through parliamentary appropriations, less disposals. 

Pursuant to the provisions of the Act, the Board maintains an accounting system 
on the accrual basis in addition to the accounts maintained by the Comptroller of the 
Treasury on the cash basis. The following is a summary of the results of the Board's 
operations for the year, compared with those of the preceding year : 

Year ended March 31 

1963 1962 

Expense — 

Production of films and other visual materials $2,975,000 $3,008,000 

Distribution of films 2,313,000 2,203,000 

Administration and general services 900,000 860,000 

Cost of production of films and other visual materials for govern- 
ment departments and others 1,557,000 1,247,000 

Acquisition of equipment (net) 197,000 172,000 

7,942,000 7,490,000 

Income — 

Sales of films and other visual materials 1,740,000 1,505,000 

Rentals and royalties 585,000 877,000 

Miscellaneous 25,000 15,000 

2,350,000 2,397,000 

Net expense $ 5,592,000 $ 5,093,000 



As disclosed in a note to the Board's financial statements, the Statement of Income 
and Expense does not include charges for the value of accommodation, contributions to 
the Public Service Superannuation Account and accounting and other services provided 
by government departments to the extent of approximately $1,083,000 for the year. 
Neither does the Statement include depreciation on equipment, estimated at $330,000 
for the year under review. 



128 AUDITOR GENERAL'S REPORT 

165. Post Office activities. The following is a summary of the Post Office transactions 

reported as departmental revenues and as charges against parliamentary appropriations 

in the Post Office section of Volume II of the Public Accounts for the year ended 

March 31, 1963 in comparison with the corresponding amounts for the preceding 

fiscal year: 

Year ended March 31 

I'.itV, 1962 

Gross postal revenue $ 222,300.000 $ 213,518,000 

Less : Expenses paid from revenue 29,528,000 29,839,000 

Net postal revenue 192,772,000 183,679,000 

Miscellaneous revenue 59,000 61,000 

192,831,000 183,740,000 

Deduct: Expenditures from parliamentary appropriations — 

Operations 119,992,000 116,983,000 

Transportation 63.935,000 62,719,000 

Administration, financial services, etc 5,417,000 5,301,000 

189,344,000 185,003,000 

Excess of revenue over expenditure $ 3.487,000 (S 1,263,000) 



This recorded excess of revenue over expenditure of $3,487,000 for 1962-63 did not, 
however, take into consideration charges for services provided by other departments, 
including accommodation provided by the Department of Public Works estimated at 
§23,411,000 or contributions to the Superannuation Account by the Department of 
Finance estimated at $7,274,000. Neither were credits for mail franked by and sent to 
Members of Parliament and government departments, estimated at $5,200,000, taken 
into account. 

166. Public printing and stationery activities. Under the Public Printing and 
Stationery Act, R.S., c. 226, the Department of Public Printing and Stationery is charged 
with the execution of printing, lithographing or work of like nature and the procurement 
and distribution of paper, books and other articles of stationery required by the Senate. 
the House of Commons and the various government departments. The Department is 
also responsible for the sale of all books or publications issued by order of either or both 
Houses of Parliament or by any department. The expenditures of the Department are 
provided for through the medium of the Queen's Printer's Advance (a statutory working 
capital advance) and by annual parliamentary appropriations. 

The basic operating expenses of the Department are charged to the Queen's Printer's 
Advance under section 37 of the Act. The Advance is credited with the value of printing 
work executed for and charged, at "factory cost", to the various departments, and also 
for the value of stationery supplied and charged to them at "purchase cost". The Act 
provides that the aggregate amount of the charges to the Advance after deducting 
therefrom any amounts due to the Queen's Printer shall not exceed $4 million at any time. 
As at March 31, 1963 the balance of the Advance was $4,730,000 and the accounts 
receivable totalled $2,371,000, so that the effective balance for the purposes of the Act 



AUDITOR GENERAL'S REPORT 129 

was $2,359,000, being an increase of $197,000 over the corresponding figure at the end 
of the preceding year. 

The following summary shows the operating results of the Queen's Printer's 
Advance for the year ended March 31, 1963 together with the comparable figures for 
the preceding year: 

Year ended March 31 
1963 1962 

Revenue $18,990,000 $19,543,000 

Expenditure — 

Direct materials 11,954,000 11,996,000 

Direct labour 3,857,000 4.296,000 

Other factory expenses 3,074,000 2,729,000 

Work sub-contracted 373,000 338,000 

Decrease or (increase) in inventories (192,000) 248,000 

19,066,000 19,607,000 

76,000 64,000 

Discount earned, etc 9,000 11,000 

Excess of expenditure over revenue $ 67,000 $ 53,000 



The expenditure shown above does not include the value of services and facilities 
including light, power, telephone, heating, amortization of buildings and equipment, etc., 
provided free of charge by other government departments and through the medium of 
the Department's own appropriations. 

In addition to the expenditures recorded through the Queen's Printer's Advance, the 
other expenditures of the Department are charged to eight different parliamentary 
appropriations and totalled $3,977,000 for the year under review. The following compares 
these expenditures with those for the preceding year: 

Year ended March 31 

1963 1962 

Departmental administration $ 771,000 $ 751,000 

Purchasing, stationery and stores (largely for salaries and wages of 

procurement and stationery stores personnel and repairs to office 

equipment) 1,201,000 1,264,000 

Distribution of official documents 685,000 597,000 

Printing and binding official publications for sale and distribution 

to departments and the public 1.012,000 938,000 

Printing of Canada Gazette 169,000 139.000 

Printing and binding the annual Statutes 26,000 35,000 

Plant equipment and replacements 106,000 239,000 

Reimbursement of the Queen's Printer's Advance for the value of 

stores which have become obsolete, unserviceable, lost or destroyed 7,000 35,000 

$ 3,977,000 $ 3,998,000 



For the year ended March 31, 1963 credits to Revenue totalled $1,660,000, most of 
which resulted from the sales of publications to the general public. 



130 AUDITOR GENERAL'S REPORT 

107. Royal Canadian Mint . The Royal Canadian Mint operates under Part II of the 
( hirrency, Mint and Exchange Fund Act, R.S., c. 315, and provides "facilities for making 
coins of the currency of Canada, and for melting, assaying and refining gold". 

Revolving fund accounts are maintained for the recording of transactions in gold, 
silver, and other metals acquired by the Mint for the purpose of its operations. The 
following is a summary of the charges and credits to these accounts during the year 
under review in comparison with the corresponding amounts for the preceding fiscal year: 

Year ended March 31 
1963 1962 

Inventories at beginning of year $20,655,000 $13,951,000 

Add: Purchases during year — 

Gold 91,020,000 85,607,000 

Silver 16,914,000 . 14,150,000 

Other metals 1,408,000 1,823,000 

109#J&,000 101080,000 

Gold revaluation 218,000 417,000 

130,215,000 115,948,000 

Deduct: Sale-— 

Gold sales 91,121,000 87,260,000 

Silver coin issues, at face value 15,853,000 11,769,000 

Other coin issues, at face value 4,961,000 3,806,000 

Silver bullion sales 49,000 48,000 

Sundry credits 4,000 

111,984,000 102,887,000 

18,231,000 13.061,000 
Add: Transfers to Revenue — 

Gain on coinage operations 8,920,000 7,562,000 

Gold refining gain 61,000 32,000 

8,981,000 7,594,000 

Inventories at end of year $27,212,000 $20,655,000 



The transfers to Revenue of $8,981,000 from the revolving fund accounts, together 
with other revenue of $725,000 ($550,000 in 1961-62), making a total of $9,706,000 for 
the year ended March 31, 1963, are recorded in the Public Accounts as revenue of the 
Department of Finance. Offset against this were expenditures totalling $1,830,000 charged 
to parliamentary appropriations under the Department of Finance as follows: administra- 
tion, operations and maintenance, $1,768,000 ($1,558,000 in 1961-62); and construction 
or acquisition of equipment, $62,000 ($117,000 in 1961-62). 

The net result of these credits and charges was an excess of revenue over expenditure 
of $7,876,000 compared with $6,469,000 in 1961-62, an increase of $1,407,000. These 
recorded results do not, however, take into consideration charges for services provided 
by other departments including accommodation provided by the Department of Public 
Works, the services of the R.C.M.P. and contributions to the Superannuation Account 



AUDITOR GENERAL'S REPORT 131 

by the Department of Finance — nor is any charge included for interest on funds 
employed. 

In paragraph 187 of last year's Report reference was made to a reduction from 20 
cents per ounce to 11 cents per ounce in the charge paid by depositors who deposit gold 
with the Mint for sale to the Crown, to cover the cost of marketing the gold outside of 
Canada. It was noted that as there had been no reduction in the gold handling charge 
of 13.8 cents per ounce assessed by the Bank of Canada on gold purchased from the Mint, 
a loss to the Mint of $62,063 had resulted during 1961-62. This situation was corrected 
with effect from April 1, 1962 by a reduction from 13.8 cents to 11 cents per ounce in the 
charge made by the Bank of Canada. 

168. Airport operations. The capital investment of the Department of Transport in 
airports as at March 31, 1963 was $579,085,000 compared with $532,917,000 at the same 
date in the preceding year, a net increase of $46,168,000 for the year under review. 

The revenue from civil aviation airport operations for the year ended March 31, 1963 
amounted to $15,519,000 compared with $14,625,000 in the preceding year. The summary 
which follows gives details of this revenue, together with the comparable amounts for 
the preceding year : 

Year ended March 31 

1963 1962 

Aircraft landing fees: 

Domestic % 3,235,000 $ 3,006,000 

Trans-oceanic 3,074,000 2,858,000 

Trans-border 753,000 686,000 

Other 23,000 30,000 

7,085,000 6,580,000 

Rentals: 

Office, shop and garage space 1,239,000 1,322,000 

Living quarters 386,000 382,000 

Hangar 197,000 181,000 

Other 1,077,000 948,000 

2,899,000 2,833,000 

Concessions : 

Gasoline and oil 1,881,000 1,693,000 

Other 1,824,000 1,516,000 

3,705,000 3,209,000 

Miscellaneous revenue 1,830,000 2,003,000 

Total revenue $15,519,000 $14,625,000 



The parliamentary appropriation for "Airports and Other Ground Services — 
Operation and Maintenance" (Transport Vote 145) was charged with expenditures 
totalling $19,755,000 for 1962-63, a decrease of $1,007,000 from the corresponding figure 
of $20,762,000 for the preceding year. 

69960-3—10 



132 AUDITOR GENERAL'S REPORT 

The excess of expenditure (excluding new construction) on airways and airports 
over the revenue received, as reflected in the Department of Transport section of the 
1962-63 Public Accounts, was therefore $4,236,000, a decrease of $1,901,000 from the 
preceding year's figure of $6,137,000. 

The results thus recorded are on a cash basis and do not include any provision for 
amortization of airport construction costs, interest on funds employed, or other costs 
such as a portion of the expenditure charged as air services administration, which would 
have to be taken into consideration if the actual net costs of civil aviation airport 
operations were to be determined. However, the Department has maintained accounts on 
an accrual basis and has prepared therefrom periodic financial statements for manage- 
ment purposes in respect of operations at the 16 major airports which together account 
for approximately 82% of the revenue from civil aviation airport operations. A consolida- 
tion of these statements, which includes a provision for depreciation of civil aviation 
facilities (though not for the other costs referred to) for the year ended' March 31. 1963 
is given as an appendix to the Department's section of the Public Accounts. 



169. In previous Reports we have expressed the view that in order that Parliament 
may gain a clear understanding of the true financial results of departmental operating 
activities, without necessarily disturbing the present basis of providing appropriations, 
consideration should be given to the inclusion in the Public Accounts of financial state- 
ments of the various activities designed to reflect the over-all operating results in a clear, 
concise manner. Such operating statements could be adjusted to the accrual basis and 
would include charges (on a memorandum basis, in the case of non-cash charges) for 
amortization of building and equipment costs, interest on funds employed, services 
provided by other departments, etc. A reconciliation could be prepared between the 
operating results reflected by each such statement and the cash results indicated by the 
related credits to departmental revenues and charges to departmental appropriations. 
Balance sheets could also be prepared which would indicate the value of the assets 
employed by the several activities at the year-end. If statements of this type were 
produced, the Audit Office would be prepared to examine and certify them. 

Paragraph 87 of the Fifth Report 1961 of the Public Accounts Committee reads: 

"The Committee feels that it would be desirable, in order that members have a clear 
understanding of the true financial results of departmental trading or servicing activities, 
such as those of the Department of Public Printing and Stationery and airport operations 
of the Department of Transport, were overall financial statements included in the Public 
Accounts without undue cost or staff increases." 

We are continuing to follow this matter up with departments having operating 
activities and to make suggestions regarding the preparation of financial statements 
along the lines proposed. As was the case last year, reluctance was found on the part 
of certain agencies to take the lead in preparing statements on the basis recommended, 



AUDITOR GENERAL'S REPORT 133 

in the absence of encouragement from the Treasury Board. However, early in the present 
fiscal year such encouragement was given to at least one of the agencies and it is hoped 
that the financial statements for 1963-64 will be prepared substantially as recommended. 



Special Audits and Examinations 

170. In addition to the examinations of departmental accounts and the audits of 
the accounts of Crown corporations, already referred to in this Report, the following 
special audits and examinations were made by the Audit Office during the year, most 
of them in accordance with specific directions contained in various statutes: Army 
Benevolent Fund Board, Atlantic Development Board, the Canada Council, the Custo- 
dian, Exchange Fund Account, National Gallery of Canada, National Productivity 
Council, Public Printing and Stationery stores, The Queen Elizabeth II Canadian Fund 
to Aid in Research on the Diseases of Children, Royal Canadian Mint stocks, Unemploy- 
ment Insurance Fund and Yukon Territorial Government. 

171. Army Benevolent Fund Board. The accounts of this Board were examined for 
the year ended March 31, 1963 pursuant to the requirement of section 11 of the Army 
Benevolent Fund Act, R.S., c. 10, and the relative report was addressed to the Chairman 
and Members of the Board, with a copy being provided to the Minister of Veterans 
Affairs. 

During the year, receipts amounted to $236,000 of which $224,000 was derived from 
interest on funds on deposit with the Receiver General of Canada and $12,000 from 
interest on Government of Canada bonds. Disbursements totalled $504,000 consisting of 
$426,000 in grants to or on behalf of World War II veterans and $78,000 for service and 
administrative expenses. The latter amount was after making deductions for a grant of 
$18,000 provided for by an appropriation of the Department of Veterans Affairs and 
for a fee of $30,000 from the Canadian Army Welfare Fund for managing the financial 
program of that fund. 

After absorbing the excess of disbursements over receipts in the amount of $268,000, 
the balance at credit of the Army Benevolent Fund at March 31, 1963 was $6,014,000 
represented by $5,754,000 on deposit with the Receiver General of Canada, $256,000 
invested in Government of Canada bonds and $4,000 of accountable advances and prepaid 
expenses. 

172. Atlantic Development Board. This Board was established by the Atlantic 
Development Board Act, 1962-63, c. 10. Under the provisions of the Act, as amended by 
Chapter 5, 1963, the objects of the Board are to inquire into and report to the responsible 
Minister upon programs and projects for fostering the economic growth and development 
of the Atlantic region of Canada, and to consider, report and make recommendations to 
the Minister concerning programs and projects. 

Funds for the Board's 1962-63 requirements were provided by an allotment of $7,000 
from Finance Vote 50 (Miscellaneous, Minor and Unforeseen Expenses). Expenditures 

69960-3— 10} 



134 AUDITOR GENERAL'S REPORT 

for the period from December 20, 1962 to March 31, 1963 amounted to $5,032, represent- 
ing administrative costs. 

Section 19 of the Atlantic Development Board Act states: 

"The Chairman of the Board shall, within three months after the termination of each fiscal 
year, transmit to the Minister a statement relating to the activities of the Board for that 
fiscal year, including the financial statements of the Board and the Auditor General's 
report thereon, and the Minister shall cause such statement to he laid before Parliament 
within fifteen days after the receipt thereof or, if Parliament is not then sitting, on any of 
the first fifteen days next thereafter that Parliament is sitting." 

The statement relating to the short initial financial period had not been tabled when 
Parliament adjourned on August 2, 1963. 

173. The Canada Council. The Council was established under the Canada Council 
Act, 1957, c. 3, "to foster and promote the study and enjoyment of, and the production 
of works in, the arts, humanities and social sciences". 

A report on the audit of the Council's accounts for the year ended March 31, 1963 
was made to the Council and to the Prime Minister, as required by the Act. 

An Endowment Fund of $50 million was established under the Act. The return on 
the investments of the Fund is used to meet administrative expenses and other expendi- 
ture for purposes of the Act, except for capital assistance grants to universities in respect 
of building construction projects. Permissible expenditures relate to the following in 
respect of the arts, humanities and social sciences: grants, scholarships and awards; 
sponsorship of exhibitions, performances and publications; exchanges with other countries 
and organizations or persons therein of knowledge and information; representation and 
interpretation of Canadian arts, humanities and social sciences in other countries; and 
liaison with the United Nations Educational, Scientific and Cultural Organization. 

The following is a summary of the results of the Endowment Fund operations for 
the year ended March 31, 1963, together with comparable figures for the preceding year: 

Year ended March 31 
1963 1962 

Surplus at April 1 S 273,000 $ 418,000 

Income— interest and dividends 3,011,000 2,955,000 

3,284,000 3,373,000 

Expenditure — 

Grants 2,721,000 2,551,000 

Canadian National Commission for UNESCO 78,000 57,000 

Administrative and other expenses 402,000 467,000 

Special project — The Canada Council Train — 25,000 

3,201,000 3,100,000 

Surplus at March 31 $ 83,000 % 273,000 



AUDITOR GENERAL'S REPORT 135 

The Council is required to provide the Secretariat for the Canadian National Cora- 
mission for UNESCO. The salary costs involved for this Secretariat were included in 
prior years under "administrative and other expenses". For 1962-63 these costs, amount- 
ing to $23,000, were included in the above expenditure item of $78,000 in order to show 
more accurately the costs of servicing the Commission. 

A University Capital Grants Fund of $50 million was established under the Act in 
order that grants could be made to universities and similar institutions of higher learning 
by way of capital assistance for building construction projects intended for use in 
furthering the arts, humanities and social sciences. These grants may be paid out of the 
principal and accumulated income of the Fund. 

The following is a summary of the University Capital Grants Fund transactions for 
the year ended March 31, 1963, together with comparable figures for the preceding year: 

Year ended March 31 
1963 1962 

Balance at April 1 $30,333,000 $34,342,000 

Add: 

Interest earned on investments 1,521,000 1,620,000 

Net profit on disposal of securities 365,000 904,000 

32,219,000 36,866,000 

Deduct : 
Authorized grants 6,275,000 6,533,000 

Balance at March 31 $25,944,000 $30,333,000 



The $25,944,000 balance of the University Capital Grants Fund at March 31, 1963 
included $14,280,000 representing interest earned and profits realized since the inception 
of the Fund. No portion of this accumulated interest and profits had been allocated by 
the Council to the provinces or distributed to the universities at the end of the fiscal 
year. 

In paragraph 92 of its Fifth Report 1961, the Public Accounts Committee, noting 
that no allocation of interest and profits had been made, recommended "that the Council 
seek to conclude this matter without further delay". In submitting my follow-up report 
dated October 30, 1963 to the Public Accounts Committee on the action taken by 
departments and other agencies in response to recommendations made by the Committee 
in 1961, reference was made to this recommendation. It was stated that in August 1963, 
following further efforts to resolve the problem presented in the interpretation of sub- 
section (2) (6) of section 17 of the Canada Council Act, the Council had reconfirmed a 
resolution passed at a February 1962 meeting, but which by later resolution was left in 
abeyance, that the 1956 census be accepted as the basis for distribution of the University 
Capital Grants Fund, and that "the 'hotch-pot' or trust fund approach be accepted for 
distribution of the income and profits on this total fund". It was further stated that the 
Council officers had been directed to prepare revised figures based on this approach and 
to advise member institutions of their entitlement. 



136 AUDITOR GENERAL'S REPORT 

While reviewing the follow-up report, the Public Accounts Committee on 
November 18, 1963 examined this matter with the Chairman and members of the 
Canada Council who were in attendance. At this meeting I advised the Committee that 
I had informed the Council that our study of the texts of the legal opinions received 
by the Council on the proposed method of allocation and distribution had caused us to 
question whether the proposed method of distribution would be in accordance with the 
provisions of the Canada Council Act. The matter remains under review by the 
Committee at the present time. 

The Council may, under section 20 of the Act, acquire money, securities or other 
property by way of gift, bequest, or otherwise, and may expend, administer or dispose 
of them subject to the terms upon which they are made available to the Council. In 
previous years gifts were comparatively small in amount and unexpended balances were 
accounted for in the balance sheet of the Endowment Fund. In February 1963, however, 
the Council accepted the offer of a gift of approximately $4,250,000 from an anonymous 
donor to be used to establish a special scholarship fund, the income from which is to 
provide fellowship and scholarship grants to Canadians for advanced study or research 
in the fields of medicine, science and engineering at universities, hospitals, research or 
scientific institutions, or other equivalent or similar institutions in Canada. $1,079,000 
of the gift was received prior to March 31, 1963 and payment of the balance is to be 
extended over the next several years. Because of the size of, and the terms associated 
with this gift, the Council approved of the presentation of a separate balance sheet as at 
March 31, 1963, designated "Special Funds", accounting for moneys or property received 
pursuant to section 20 of the Act to a total of $1,099,000. 

174. The Custodian. In accordance with Regulation 6 of the Revised Regulations 
respecting Trading with the Enemy (1943) as set out in the schedule to the Trading 
with the Enemy (Transitional Powers) Act, 1947, c. 24, the Secretary of State is 
appointed Custodian "to receive, hold, manage, release, dispose of and otherwise deal 
with all property which is reported to him, received or controlled by him or vested in 
him" by virtue of the Regulations. The Under-Secretary of State acts as Deputy 
Custodian and the Custodian's Office is administered by an Assistant Deputy Custodian 
in Ottawa. A report on the audit of the Custodian's accounts for the year ended 
December 31, 1962 was made to the Secretary of State. 

The book value of the assets vested in the Custodian, which were valued in 
accordance with bases explained in an addendum to the statement of assets and liabilities, 
decreased by $571,000 to $4,138,000 at December 31, 1962. A transfer of $500,000 to the 
Minister of Finance for the War Claims Fund, and releases of $311,000 to former owners 
or their beneficiaries, offset in part by an appreciation of $256,000 in the value of 
remaining vested assets, accounted for the greater part of the decrease. 

Under the Regulations referred to above, the Custodian is authorized to charge 
against all property investigated, controlled or administered by him, whether it has been 
vested in him or not, a fee for services rendered not exceeding 2% of the value of the 
property including the income therefrom. He is also permitted to employ such part of 






AUDITOR GENERAL'S REPORT 137 

the property vested in him or the proceeds therefrom as may be necessary to pay the 
expenses incurred in the administration of the Regulations. 

All administration fees and any income received from vested assets which consist 
of or are converted into cash or Government of Canada bonds are credited to the 
Custodian's Administration Account, from which all expenses of the office are paid. 
As a result, the Custodian has accumulated, from September 2, 1939 to December 31, 
1962, a surplus of $4,468,000 — largely invested in Government of Canada bonds. 

The following is a summary of the income and expense of the Custodian for the 
year ended December 31, 1962 together with the comparable figures for the preceding 
year: 

Year ended December 31 

1962 1961 

Income — 

Fees on assets released from administration S 23,000 $ 2,000 

Interest on investments and bank deposits 207,000 194,000 

Other income 8,000 3,000 

238,000 199,000 

Expense — 

Salaries 110,000 106,000 

Other expense 8,000 14,000 

118,000 120,000 

Surplus for year $ 120,000 $ 79,000 



The fees earned on the transfer to the Minister of Finance and the assets released 
to former owners, or their beneficiaries, to which previous reference has been made, 
account for most of the increase of $21,000 for fees on assets released from administration. 

175. Exchange Fund Account. The Exchange Fund Account, first established by the 
Exchange Fund Act, 1935, c. 60, and continued by the Foreign Exchange Control Act, 
1946, c. 53 now operates under Part III of the Currency, Mint and Exchange Fund Act, 
R.S., c. 315. The purpose of the Account is "to aid in the control and protection of the 
external value of the Canadian monetary unit". 

The accounts of the Exchange Fund for its financial year ended December 31, 1962 
were examined pursuant to the requirement of section 27 of the Currency, Mint and 
Exchange Fund Act and the relative report was addressed to the Minister of Finance in 
accordance with established practice. The section requires that a special certificate be 
given annually to Parliament, and in accordance with that requirement, it is now 
certified that the transactions in connection with the account for the year ended 
December 31, 1962 have been in accordance with the provisions of the Act, and that the 
records showed truly and clearly the state of the account. 



138 



AUDITOR GENERAL'S REPORT 



The following is a summary of the transactions in the Account for the year ended 
December 31, 1962 compared with the transactions in the previous financial year: 

Year ended December 31 

1962 1061 

Balance at January 1 $ 2,162,606,000 $ 1,929,536,000 

Deduct: 

Paid into Consolidated Revenue Fund in respect of earnings 32,606,000 32,536,000 

2,130,000,000 1,897,000,000 
Add: 

Advances (net) received during the year 521,000,000 233,000,000 

Earnings on investments during the year (to be paid into the 

Consolidated Revenue Fund) 35,227,000 32,606,000 

Balance at December 31 2,686,227,000 2,162,606,000 

Represented by: 

Canadian dollars 160,000 844,000 

United States dollars and securities 1,941,310,000 1,128,605,000 

Gold 763,169,000 987,296,000 

Suspense Account 3,000 

2,704,639,000 2,116,748,000 

Surplus (Deficit) 18,412,000 (45,858,000) 

$ 2,686,227,000 S 2,162,606,000 



In the year under review the value of the United States dollar increased from 
$1.04 11/32 Canadian at December 31. 1961 to $1.07 23/32 at December 31, 1962 and 
the deficit of $45,858,000 at December 31, 1961 was replaced by a surplus of $18,412,000 
at December 31, 1962. This gain of $64,270,000 resulted from the following: 

Net profit on sales of ILS. securities $ 2,846,000 

Gain on sales of gold 2,095,000 

Exchange valuation credits (net) 59,329,000 

$64,270,000 



It should be noted that the surplus of $18,412,000 at December 31. 1962 would have 
been considerably larger at that date if losses accumulated in the Account, and represent- 
ing a cost of exchange management since its inception, had been written off in the 
central Government accounts. In paragraph 141 of our Report to the House of Commons 
for the fiscal year ended March 31. 1962 we recommended that provision be made for 
transferring annually to the Consolidated Revenue Fund the realized profits or losses 
from trading operations and revaluation of holdings of gold and foreign currencies. This 
recommendation is now repeated. 

176. National Gallery of Canada. The Gallery was incorporated under the National 
Gallery Act. 1913, c. 33, now R.S., c. 186. Its objects and powers comprise the develop- 
ment, maintenance, care and management of the national gallery, the acquisition of 
works of art and generally the promotion of the public interest in art in Canada. 



Year ended March 31 


1963 


1962 


$ 348,000 
155,000 
308,000 


$ 328,000 
161,000 
365,000 


811,000 
138,000 


854,000 

243,000 

3,000 


$ 949,000 


$ 1,100,000 



AUDITOR GENERAL'S REPORT 139 

Pursuant to section 9 of the National Gallery Act, the Gallery's accounts were 
audited for the year ended March 31, 1963 and a report was addressed to the Secretary 
of State. A more detailed report to the Board of Trustees contained our comments and 
recommendations regarding various administrative weaknesses. Most of these weaknesses 
had been brought to the attention of the Board in previous reports but the steps taken, 
although resulting in some improvement in 1962-63, for the most part proved to be 
ineffective. Since the year end, the Gallery has added an intermediate administrative 
officer whose principal responsibility will be the implementation and effective operation 
of an integrated system of internal control. 

The following is a comparative summary of expenditures for the past two years: 



Administration, operation and maintenance — 

Salaries and wages 

Professional and special services (including security personnel) 
Other 

Purchases of works of art , 

Expenditure from trust funds 



The operating expenses of the National Gallery are largely met from annual 
parliamentary appropriations, with the remainder paid from a special operating account. 
Funds for the acquisition of works of art are provided through the National Gallery 
Purchase Account to which are credited moneys appropriated by Parliament for that 
purpose. Funds from the National Gallery Special Operating Account are also used to 
acquire works of art. 

The 1962-63 Public Accounts record a charge of $200,000 under Vote 5 for a payment 
to the National Gallery Purchase Account for the purpose of acquiring works of art. 
Of this amount, $33,000 was not credited to the Purchase Account until August 1963 
following the passing of the Special Appropriation Act 1963, assented to on July 22, and 
therefore could not be reflected in the Gallery's financial statements for the year ended 
March 31, 1963. This additional amount increased the balance recorded in the Purchase 
Account as at March 31, 1963 to $82,000. 

As stated in last year's Report, parliamentary control may be weakened by the 
supplementing of specific appropriations for purchases of works of art by expenditures 
from the National Gallery Special Operating Account, and the crediting of the Special 
Operating Account with the proceeds from the sale of Gallery publications, fees from 
exhibitions and lectures, and service charges when the costs of producing this revenue 
are mainly met from the parliamentary appropriation for operating expenses. 

177. National Productivity Council. This Council was established by the National 
Productivity Council Act, 1960-61, c. 4, with the objects of promoting and expediting 
continuing improvement in productive efficiency in the various aspects of Canadian 



140 AUDITOR GENERALS REPORT 

economic activity. Operations were conducted from a head office in Ottawa and regional 
offices in Halifax, Quebec, Toronto and Winnipeg. 

The Economic Council of Canada Act, 1963, c. 11, enacted on August 2, 1963, 
provided for the repeal of the National Productivity Council Act and the payment of any 
amounts standing to the credit of the National Productivity Council, after the payment 
of the Council's debts and obligations, to the Receiver General of Canada to be held 
and applied toward the payment of the expenses of the Economic Council of Canada. 

The following is a summary of the income and expenses of the National Productivity 
Council for the year ended March 31, 1963: 

Income — 

Statutory grant S 150,000 

Donations 86,000 

Government's contributions under section 16 of the Act 83,000 

Interest 5,000 

' S 324,000 

Expense — 

Salaries and employees' benefits 131,000 

Donations to approved projects 119,000 

Travel 68,000 

Publicity 18,000 

Office equipment and expenses 15,000 

Professional services 14,000 

Other conference and seminar expenses 13,000 

Telephone, telegram, postage and express 13,000 

Rent and accounting services 7,000 

Other 2.000 

400,000 

(76,000) 
Deduct — 
Travel and living expenses of Council members provided by 

statutory appropriation (recorded above) 15,000 

Credits for rent and accounting services provided by the Govern- 
ment of Canada (recorded above) 7,000 

22,000 

Excess of expense over income $ (54,000) 



The statutory grant was received under the provisions of section 15 of the National 
Productivity Council Act as the second payment authorized under the section, which 
directed the Minister of Finance to pay to the Council, from the Consolidated Revenue 
Fund, for each of the first three years after the coming into force of the Act, the sum of 
$150,000 and thereafter such amounts as may have been appropriated by Parliament for 
the purpose. 

Section 16 of the Act provided that where the Council, during the first three years 
of its existence, acquired by gift, donation or bequest any asset from a person other than 
Her Majesty, the Minister of Finance should pay out of the Consolidated Revenue Fund, 
in addition to the amount paid under section 15 in any year, an amount equal to the 
value of the property so acquired. During the year the Council received donations 
totalling $86,000. of which $83,000 was from sources other than Her Majesty and was 



AUDITOR GENERAL'S REPORT 141 

accordingly matched by contributions by the Government. The remaining $3,000 was 
received from Her Majesty in right of several provinces and was not eligible for contri- 
butions under the provisions of section 16. 

Section 19 of the National Productivity Council Act provided as follows: 

"The Chairman of the Council shall, within three months after the termination of each 
fiscal year, submit to the Ministers of Trade and Commerce and of Labour a report of all 
proceedings under this Act for that fiscal year, including the financial statements of the 
Council, and the Auditor General's report thereon, and the Minister of Trade and Commerce 
shall cause such reports to be laid before Parliament within fifteen days after the receipt 
thereof or, if Parliament is not then sitting, on any of the first fifteen days next thereafter 
that Parliament is sitting." 

No such report of proceedings under the National Productivity Council Act was 
tabled in Parliament before adjournment on August 2, 1963. We were informed by officers 
of the Council that a report on all proceedings under the Act up to August 2, 1963, the 
date of repeal of the National Productivity Council Act, along with the financial state- 
ments and the Auditor General's report for the year ended March 31, 1963, was presented 
to the Minister of Trade and Commerce on August 2, 1963. 

178. Public Printing and Stationery stores. Section 34(2) of the Public Printing 
and Stationery Act, R.S., c. 226, requires the Auditor General to "annually or more 
frequently at his discretion, cause the stock of stationery, printing materials and supplies 
in store, to be checked with the quantities purchased and supplied". During 1962-63, as 
in previous years, such tests were made as were considered necessary to establish that the 
controls exercised by the Department were operating satisfactorily. In addition, we 
participated in the physical inventory checking by departmental personnel. A report on 
the examination was made to the Minister of Industry. 

At March 31, 1963 the inventories of stationery, printing materials and supplies 
held by the Department totalled $2,594,000, and compared with the inventories at the 
end of the previous year as follows : 

As at March 31 

1963 1962 

Stationery supplies $ 705,000 $ 611,000 

Typewriter and office machine parts 152,000 152,000 

Paper 398,000 361,000 

Printing and maintenance supplies 473,000 464,000 

Printing units 342,000 362,000 

Miscellaneous 72,000 62,000 

Work in process 452,000 339,000 

$ 2,594,000 $ 2,351,000 



179. The Queen Elizabeth II Canadian Fund to Aid in Research on the Diseases 
of Children. The Queen Elizabeth II Canadian Research Fund Act, 1959, c. 33, established 
this Fund to assist individuals or organizations to undertake or carry on research into the 
diseases of children, and the causes, prevention and treatment of such diseases. A Board 



142 AUDITOR GENERAL'S REPORT 

of Trustees consisting of a chairman ami six other trustees is responsible for the manage- 
ment and administration of the Fund. As required by the Act, the National Research 
Council provides, without charge, such secretarial and other administrative and technical 
services and facilities as may be required by the Board, whose head office is in Ottawa. 
A report on the audit of the Fund's accounts for the year ended March 31, 19ti:S, which 
contained no qualification, was made to the Board and to the Prime Minister as 
required by the Act. 

The Act provided $1,000,000 for the Fund and also permits the Board to accept gifts 
for its purposes. A summary of the Fund's transactions for the year ended March 31, 1963 
compared with the preceding year is given below: 

Year ended March 31 
1963 1962 

Balance at April 1 $ 1,003,000 $ 1,058,000 

Add: 

Interest on investments 57,000 56,000 

Gifts 1,000 1,000 

58,000 57,000 

1,061,000 1,115,000 

Deduct : 
Awards approved during year 12,000 112,000 

Balance at March 31 $ 1,049,000 S 1,003,000 



Two categories of awards have been approved by the Board of Trustees, namely, 
"Queen Elizabeth II Fellowships" and "Queen Elizabeth II Scientists". Awards in the 
first category are made to doctors of medicine or "other suitable fields of science" to 
enable them to obtain advanced training and experience in research related to diseases 
of children, and range in value from $3,500 to $5,000 per annum. During the year under 
review two new and one renewal fellowships were approved totalling $12,000. The second 
category covers the salaries of scientists appointed to carry out research at universities or 
teaching hospitals. Regulations approved by the Board of Trustees with regard to these 
appointments provide for payments of $10,000 per annum for the first three years and 
$5,000 for the next following three years, after which the institution at which the 
appointment is held is expected to maintain the salary of the appointee at an appropriate 
level without further recourse to the Fund. There were no appointments under this 
category during the year under review. The Fund is presently giving support to three 
appointees of prior years. At March 31, 1963 the outstanding liability of $95,000 in respect 
of these appointments was included in the total provision of $111,000 for awards 
approved, appearing in the balance sheet of the Fund as at that date. 

180. Royal Canadian Mint stocks. The Royal Canadian Mint is a branch of the 
Department of Finance and its revenue and expenditure accordingly form part of the 
departmental revenue and expenditure and are examined as such. However, section 20 
of the Currency, Mint and Exchange Fund Act, R.S., c. 315 requires that the Auditor 
General shall "at least once in each year inspect the store of bullion and coin at the 



AUDITOR GENERAL'S REPORT 143 

Mint". Such an inspection was made as at February 28, 1963 and a report thereon was 
made to the Deputy Minister of Finance. The stocks of bullion and metals at cost, and 
coin at face value, held by the Mint at February 28, 1963 amounted to $21,407,000, 
comprising: gold, $2,466,000; silver, $18,420,000; nickel. $71,000; bronze. $450,000. 

181. Unemployment Insurance Fund. The Unemployment Insurance Act, 1940, c. 44, 
whose purpose was to provide for insurance against unemployment and to maintain a 
national employment service, established this Fund as a special account in the Consoli- 
dated Revenue Fund to which all contributions from insured employees and their 
employers and Government of Canada contributions equivalent to one-fifth of the total 
employee-employer contributions, together with interest on investments, were to be 
credited — and to which benefits and other payments under the Act were to be charged. 
The Fund now operates under the Unemployment Insurance Act, 1955, c. 50 which, like 
the Act it superseded, is administered by the Unemployment Insurance Commission 
consisting of three commissioners appointed by the Governor in Council. Particulars of 
the unemployment insurance administration are given in paragraph 63. 

Financial statements showing the state of the Fund as at the end of the fiscal year 
and the operations of the Fund during the year are prepared annually by the Unemploy- 
ment Insurance Commission. In my 1960 Report (paragraph 109) I drew attention to 
the fact that the Act did not provide for these financial statements to be audited. The 
Public Accounts Committee took note of this and in its Fifth Report 1961 (paragraph 82) 
recommended that these statements be required by statute to be prepared by the Com- 
mission and reported upon by the Auditor General. Although the Act has not yet been 
amended, the Commission has submitted its financial statements for the past two years 
to the Audit Office for examination, and the statements for the year ended March 31, 
1963, together with my report thereon to the Minister of Labour, are reproduced in the 
Public Accounts, Volume II, pages 17.16 to 17.18. 

The following is a comparative summary of the Fund's transactions for the past 
three years, together with the year-end balances at the credit of the Fund : 

1960-61 1961-62 1962-63 

Income — 
Contributions from employers and employees . .$ 275,273,000 S 277,789,000 $ 286,430,000 
Contributions from Government of Canada 55,055,000 55,558,000 57,286,000 

Other income 10,043,000 6,889,000 2,570,000 

Less: Loss on sale of securities 7,269,000 622,000 

2,774,000 6^67,000 2,670,000 

333,102,000 339,614,000 346,286,000 
Expenditure — 

Benefit payments 513,906,000 454,740,000 403,191,000 

Interest on advances 403,000 2,961,000 

514,309,000 457,701,000 403,191,000 

Excess of expenditure over income $ 181,207,000 $ 118,087,000 $ 56,905,000 

Balance at credit of the Fund $184,685,000 $ 66,598,000 $ 9,693,000 



H4 AUDITOR GENERAL'S REPORT 

The annual deficits shown above do not include the administrative expenses of the 
Commission which are financed out of the parliamentary appropriations to the Com- 
mission under the Department of Labour (see paragraph 03). Also not included are: the 
value of accommodation for the Commission's regional and local offices throughout 
Canada, contributions to the Public Service Superannuation Account, accounting services 
rendered by the Comptroller of the Treasury and other services provided by government 
departments, all of which were estimated at $9,754,000 for the year. 

The deficit of S50, 905.000 in 1962-63 was lower than that of the preceding year by 
v >>1 .182,000. This substantial reduction for the second successive year is again attributable 
to fewer benefit payments and shorter benefit periods. The average monthly percentage 
of the insured population drawing benefit in 1962-63 was 8.1% compared with 9.3$ in 
1961-62 and 10.7$ in 1900-01. Initial benefit claims allowed in 1962-63 numbered 
1,292,476 compared with 1.370.738 in 1961-62 and 1.546.414 in 1960-61 and the average 
number of benefit weeks paid was 13.4 in 1962-63 compared with 14.3 in 1961-62 and 
16.4 in 1960-61. 

The Act provides that amounts in the Fund that are not currently required shall 
be invested by the Commission in obligations of, or guaranteed by the Government of 
Canada. Over the years, securities in substantial sums were acquired during the summer 
months when contributions and other income exceeded benefit payments and were 
liquidated, as required, during the winter months when the flow of funds was reversed. 
Up to a point in 1961 the Commission's tradings were exclusively in public issues of 
Government of Canada bonds and, to a lesser extent. Canadian National Railways bonds. 
In the 1962 Report (paragraph 200) we referred to a change in policy which had resulted 
in the takeover by the Department of Finance on September 29, 1961 of the entire 
portfolio of the Fund at its book value of $240,454,000 in exchange for the discharge of its 
liability to the Minister of Finance for loans outstanding together with the acquisition 
in an amount equivalent to the balance, of a special issue of Government of Canada 
non-negotiable bonds redeemable at par subject to 30 days prior notice. The purpose of 
the takeover had been explained to the House of Commons by the Minister of Finance 
as being to remove from the bond market the Fund's holdings of Government securities 
which, because of their size and the volume of sales and purchases therein, were exerting 
an unstabilizing influence on the market. We also drew attention last year to the fact 
that the transfer of the securities at book value had relieved the Fund of a loss on their 
disposal which could have amounted to $34,486,000 based on their market value at the 
date they were transferred. 

All security transactions of the Fund in the year under review were in the special 
Government of Canada issue and thus no losses on sales were incurred. 

182. Yukon Territorial Government. The Yukon Act, 1952-53, c. 53, as amended, 
provides for the appointment by the Governor in Council of a chief executive officer 
for the Territory to be known as the Commissioner and for the election of a Council 
composed of seven members. The Commissioner in Council is empowered by the Act to 
make ordinances for the government of the Territory in those fields normally within 
provincial jurisdiction. 



AUDITOR GENERAL'S REPORT 145 

The accounts relating to the receipt and expenditure of territorial funds and of 
money appropriated by Parliament for the Territory are subject to examination by the 
Auditor General of Canada, in accordance with section 26 of the Act. There is no require- 
ment, however, for the preparation of annual financial statements, nor for their certifica- 
tion by the Auditor General as the statutory auditor. The Department of Northern 
Affairs and National Resources has advised that it proposes to recommend amending 
legislation to this effect. Pending the enactment of such legislation, the Commissioner 
has submitted, for audit examination, the annual financial statements prepared by the 
Territory for publication in its Public Accounts, and I have agreed to furnish audit 
certificates with respect to such statements. 

The following is a summary of expenditure and revenue of the Yukon Territorial 
Government for the year ended March 31, 1963, with comparable amounts for the 
preceding fiscal year: 

Year ended March 31 

1963 1962 

Expenditure — 

Capital projects $ 3,817,000 $ 1,748,000 

Education 1,153,000 951,000 

Roads, bridges and public works 961,000 894,000 

Yukon Hospital Insurance Service 744,000 813,000 

Health and welfare 480.000 404,000 

Justice 330,000 — 

Municipal and area development 277,000 285,000 

Other expenditure 637,000 530,000 

8,399,000 5,625,000 

Revenue — 

Federal grants 1,335,000 498,000 

Liquor profits 922,000 875,000 

Tax revenue 703,000 551,000 

Licence revenue 259,000 221,000 

Other revenue 197,000 170,000 

3,416,000 2,315,000 

Expenditure recoveries: 

Capital projects $ 1,730,000 1,214,000 

Roads, bridges and public works 564,000 575,000 

Yukon Hospital Insurance Service 471,000 421,000 

Education 450,000 321,000 

Health and welfare 160,000 140,000 

Other recoveries 97,000 71,000 

3,472,000 2,742,000 

6,888,000 5,057,000 

Excess of expenditure over revenue $ 1,511,000 $ 568,000 



H6 AUDITOR GENERALS REPORT 

The revised agreement between the Territory and the Federal Government covering 
financial relations and the allocation of functions between the two governments for the 
five year period commencing April 1, 1962, which was based on the recommendations of 
the Interdepartmental Committee on Federal-Territorial Financial Relations, includes a 
provision that the Territory contribute towards the cost of policing and administration 
of justice. Justice expenditure of $330,000, for which there was no counterpart in the 
prior year, resulted from this recommendation. 

Loans payable to the Federal Government at the close of the fiscal year totalled 
$5,431,000, an increase of $3,296,000 from the previous year's total of $2,135,000. Funds 
in the amount of $2,833,000, borrowed by the Territory to meet cash requirements for 
capital expenditure as provided in the revised agreement referred to above, formed the 
major part of this increase. 



I would like to record my appreciation to all members of the staff of the Audit Office 
for their loyalty and devotion to duty during the past year. 

A. M. HENDERSON, 
Auditor General of Canada. 



November 25, 1963. 






APPENDICES 

Non-Productive Payments noted in the Audit for the Year ended March 31, 1963 Appendix 1 

Summary of Expenditure by Standard Objects for the Year ended March 31, 1963, 

with comparable figures for the Preceding Fiscal Year Appendix 2 

Summary of Employees authorized for the Public Service, by Departments, Crown 
Corporations and Other Instrumentalities — March 1963 in comparison with 
March 1962 Appendix 3 



14S AUDITOR GENERAL'S REPORT 

APPENDIX 1 

NON-PRODUCTIVE PAYMENTS NOTED IN THE AUDIT 
FOR THE YEAR ENDED MARCH 31, 1963 

(See paragraph 98) 

1 . ABANDONMENT OF SHABED-COST SCHOOL CONSTRUCTION PROJECT, SOUTHAMPTON, ONT. Ill 

1957 the Indian Affairs Branch of the Department of Citizenship and Immigration, with 
the concurrence of the Indian parents concerned, approached the Southampton School 
District to provide joint school facilities to include the Indian population, and subse- 
quently the Department received authorization to make a capital contribution towards 
the cost of a new school building. After the plans were drawn, the Indian parents changed 
their minds and the project was abandoned, with fees totalling $3,811 being paid by the 
Department to architects. 

In 1961 negotiations were reopened with the school district, following a survey of the 
Indian population that indicated considerable support for an integrated school. The 
Department was again authorized to enter into an agreement and to make a capital 
contribution towards the cost of the new school building. The agreement was signed 
and a tender call was issued by the school district in June 1962. Early in July, however, 
acceptance of the tenders was delayed at the request of the Department because of 
the organized opposition of a group of Indians, and subsequently the project was again 
abandoned. In February 1963 the Department paid $7,886 to the Southampton School 
District in reimbursement of architects' fees and costs of the tender call incurred for the 
proposed school building. 

2 . construction of ammunition lighters. In September 1953 a shipbuilding concern was 
awarded a firm price contract by the Department of Defence Production, for the 
construction of two ammunition lighters for the Navy. At the time tenders were called 
the estimated period of construction was to be nine months. However, the actual time 
required was 37 months due largely to delays beyond the control of the contractor inas- 
much as specifications were inadequate, the design was not firm and components to be 
incorporated into the vessels were not delivered on time. In the year under review, 
the shipbuilding firm was paid $68,925 in settlement of its claim for additional costs 
attributable to the delays. 

An almost identical situation arose in connection with a contract for the construction of 
another ammunition lighter, awarded by the Department to another shipbuilding firm 
also in September 1953. In this case the actual period of construction was 42 months, the 
prolongation of the contract being in large measure attributable to delays in the approval 
of drawings and in the delivery of machinery and equipment and associated drawings 
under a contract placed independently by the Department. The shipbuilding firm 
claimed for additional costs occasioned by the delays and, during the year under 
review, was paid $12,817 in settlement of its claim. 

We are informed by the Department that the circumstances giving rise to these pay- 
ments in 1962-63 occurred in 1953 when the Department was struggling to achieve 
sufficient organizational strength to compete with the tremendous procurement demands 
being made upon it by the tide of events flowing from the Korean War. 

3. preparatory work for correctional work camp, belair forest reserve, max. After 
informal discussions between penitentiary and provincial officials a site was chosen in 



AUDITOR GENERAL'S REPORT 149 

this Forest Reserve, for a minimum security correctional work camp. A formal approach 
to the provincial government for approval of the site was delayed until a suitable water 
supply could be located. Meanwhile considerable preparatory work was carried out, 
including the acquisition of equipment and building material and surveys of the prop- 
erty. The provincial government rejected the initial request for approval of the site but 
subsequently agreed to the location with the stipulation that the camp be not con- 
structed on a permanent basis and be removed within three months, on request. This 
was not satisfactory to penitentiary officials and work was discontinued. Although 
material and equipment that had been acquired for construction may be used at an 
alternate location, $10,000 spent on the development of a water supply was non- 
productive. 

4. COST OF LAND ACQUIRED, AND PRELIMINARY WORK UNDERTAKEN AT UNSUITABLE LOCATIONS. 

As part of a program of expansion of penitentiary facilities, decisions were made to 
construct a maximum security penitentiary at St. Pie, Quebec and a medium security 
institution in the Markdale-Dundalk area of Ontario. Expenditure to the close of the 
fiscal year on the first institution totalled $90,000 of which $83,000 was for land and 
$7,000 for survey, legal and engineering investigation costs. Expenditure of $7,000 at 
the Markdale-Dundalk site was for survey and engineering costs only. After the close 
of the year work at the two sites was discontinued as it was decided that both were 
unsuitable as locations for the planned institutions. 

5. COST OF MANAGEMENT CONSULTANTS' SURVEY CANCELLED BEFORE COMPLETION. In Decem- 
ber, 1961 the Unemployment Insurance Commission entered into an agreement with a 
firm of management consultants to: (i) produce time standards for work measurement 
and develop programs for determining staff requirements for non-measurable activities 
and measuring performance efficiency, (ii) advise on the role and size of the Standards 
and Methods Division and on a suitable organizational framework within which to carry 
out its role, and (iii) provide a training program for the staff of that division. The work 
was to be carried out at a cost, not including travelling expenses incurred outside 
Ottawa, of $43,500, including $9,000 for the training program. Before the work was 
completed the training program was cancelled, and the firm claimed and was paid 
$2,360 to cover preliminary work carried out on the program prior to being notified of 
its cancellation. 

6. EXTRA COSTS DUE TO DEFAULT OF ORIGINAL CONTRACTOR ON CONSTRUCTION CONTRACT, FUNDY 

national park, n.b. After the original contractor had defaulted on a contract let by the 
Department of Northern Affairs and National Resources, for the construction of a pump- 
house and valve-house at Fundy National Park in 1959, a contract was entered into 
with the second lowest bidder, at an added cost of $13,234, including an increase of 
$2,950 to compensate for winter work and price increases. The security deposit of 
$5,391 of the original contractor was forfeited to the Crown. In 1959 this contractor was 
paid $1,333, the difference between the value of $4,283 placed on material which had 
been delivered to the site and the amount of $2,950 by which the second low bid had 
been increased as mentioned above. Early in 1963 he sought additional compensation, 
claiming that his inability to perform the contract had been due in part to misunder- 
standings with departmental officers. Although the Department continued to hold the 
view that the basic reason for the contractor's default was his inability to construct a 
well as specified, he was paid an additional amount of $6,616, based on a return of his 
forfeited security deposit, with interest, and the value of material, not previously 
considered, which had been left on the site. 



150 AUDITOR GENERALS REPORT 

7. REIMBT7BSEMSNT OF CONTRACTOR'S PRELIMINARY EXPENSES WHEN ROAD CONTRACT CAN- 

( i i.i.Ki). yellow knife, n.w.t. In 1961 the Department of Public Works entered into a 
contract for improvements to the road between Yellowknife and the local airport. Before 
the start of construction, the Department of Northern Affairs and National Resources, 
which was financially responsible for the work, decided that a new route should be 
followed and that no work should be done on the existing road. The contract was 
cancelled and the contractor was paid $4,372 during the year as compensation for his 
preparatory expenses. 

8. CONSTRUCTION of jetty services, seaward defence base, Halifax. A contract for steam, 
water, air. electrical and telephone lines at the Royal Canadian Navy Seaward Base 
was awarded in May 1959 by Defence Construction (1951) Limited in the amount of 
$120,200. After commencement of the work and when progress was gaining momentum, 
the Navy advised that major changes must be made to the design. The time lost while 
new drawings were prepared and while materials and equipment called for by the 
modified design were being procured forced the contractor into winter operations and, 
as a result, the contractor claimed for additional costs of $21,522. The Crown accepted 
responsibility for five months delay and made settlement in the amount of $12,985 in 
May 1962. 

9. roadwork and landscaping, camp petawawa, ont. In April 1956 a contract in the 
amount of $1,572,112 was awarded by Defence Construction (1951) Limited for road- 
work, landscaping, sewers and watermains at Camp Petawawa. This work was being 
carried out during a period of major activity in the Canadian Army Home Station 
Development Program and at the time there were 19 separate contracts in progress on 
the site. The projects were scheduled in such a way that there would be a minimum 
of interference and interruption in the work being carried out by the individual con- 
tractors. However, delays in the delivery of steel and other building materials, a 
shortage of electrical power, delays by the Crown in removing temporary Army build- 
ings together with changes in the design and specifications caused the overall project to 
fall behind schedule. The contractor for the roadwork, landscaping, sewers and water- 
mains was thus prevented from proceeding with the construction schedule as tendered 
and additional costs for rented equipment, standby time and repairs to damaged land- 
scaping were incurred. 

The contractor claimed for the additional costs occasioned by the above-mentioned 
delays and was paid $36,604 in December 1962. 

10. extension of water and sewerage facilities, greenwood, n.s. In April 1960 Defence 
Construction (1951) Limited awarded a contract in the amount of $225,340 for the 
extension of water and sewerage facilities to serve 300 Permanent Married Quarters 
being constructed under another contract at R.C.A.F. Station, Greenwood. 

The construction schedule called for work to commence by May 10, 1960 and for 
completion of the project by August 30, 1960. but actual completion was not until 
December 1960. Because the building contractor, in spite of careful planning, was unable 
to complete the houses on schedule, the sewerage work was delayed 30 working days. 
In addition, due to a delay in the availability of electrical power, the contractor was 
obliged to rent portable generators and pumping equipment in order to provide tem- 
porary water supply and sewerage facilities. As a result of these delays, the contractor 
claimed for the idle time of his equipment and the rental of additional equipment and 
overhead, anil was paid $16,315 in the year under review. 



AUDITOR GENERAL'S REPORT 151 

1 1 . CONSTRUCTION OF FOUNDATIONS AND INSTALLATION OF SERVICES, ST. SYLVESTRE, QUE. In 

October 1961 Defence Construction (1951) Limited awarded a contract in the amount 
of $127,136 for the construction of foundations and installation of services for 25 mobile 
homes at R.C.A.F. Station, St. Sylvestre. During the progress of the work, sub-surface 
water conditions, underground springs and substantial rock excavation not originally 
anticipated impeded the progress of the contract. This, combined with the time required 
to process necessary engineering and design changes, made it impossible for the contractor 
to meet the target completion date of December 15, 1961. Consideration was given to 
deferring the work until the spring of 1962. However, this was rejected due to the pre- 
arranged program for manufacture, delivery and erection of the mobile homes under 
another contract. 

Thus the contractor was forced into a winter construction program at substantially 
increased costs. When the ground thawed in the spring it was discovered that the 
waterline pipe was broken in many places. A firm of consulting engineers employed to 
carry out an investigation to determine the cause of the failure reported that movement 
of the saturated and unstable foundation materials under freezing winter conditions 
had subjected the pipe to loads in excess of its structural strength. As a result of further 
engineering studies by engineers of Defence Construction (1951) Limited and the 
Department of National Defence a number of design changes were made which took 
into consideration the sub-surface conditions encountered. The remedial work thus 
occasioned involved the reopening of the entire system and this was carried out in the 
summer of 1962. 

The foregoing delays resulted in an unproductive period of approximately five months. 
The costs incurred during this period, and for the remedial work, were established at 
$130,569 by Defence Construction (1951) Limited and agreed to by the Department 
and, as the Crown had accepted responsibility for half of such costs, the contractor was 
paid $65,284. 

12. CONSTRUCTION OF ROADS, ETC., AND WATER AND STEAM DISTRIBUTION SERVICES, SUMMERSIDE, 

p.e.i. In October 1958 a contract was awarded by Defence Construction (1951) Limited 
in an amount of $1,512,749 for the construction of roads, drainage, grounds development, 
concrete aprons and taxiways, and water and steam distribution services at the R.C.A.F. 
Station, Summerside. 

After the commencement of work under the contract, delays were occasioned by changes 
in the plans for the work. The most serious delay arose in August 1959 when a change 
in profile of hangar aprons and taxiways resulted in additional quantities of sub-base 
material being required, and additional funds to provide for this were not made avail- 
able in time to take advantage of the fall construction season. Although the contractor 
continued with the work on a reduced scale until September 1959 he was then obliged 
to suspend operations. 

In the schedule for the over-all project it was anticipated that a substantial amount 
of asphalt would be laid in the fall of 1959 and the contractor had been instructed to 
move his asphalt plant to the site. However, because of the delay mentioned, only a 
limited amount of asphalt work could be completed. The contractor claimed for addi- 
tional costs for rental of equipment, overhead, and supervision and was paid $76,213 in 
October 1962. 

13. ADDITIONAL COSTS DUE TO DECISION TO CHANGE SITE OF BUILDING, OTTAWA. In 1955 an 

architect was retained by the Department of Public Works to prepare plans and specifi- 
cations for, and to supervise the construction of, a building for the National Research 
Council at Ottawa. After he had prepared preliminary plans, sketches, etc., a change 



152 AUDITOR GENERAL'S REPORT 

in site was decided upon by the Council, as a result of which the shape and style of 
the proposed building had to be substantially revised to fit in with other buildings 
planned for or being constructed in the same area. In 1960 the architect was paid 
$21,835, provisionally, on a quantum meruit basis, in accordance with the terms of his 

contract, for services rendered prior to the decision to re-site the work. During the year 
under review he was paid an additional $4,861 in connection with the abandoned work 
when he was able to substantiate a part of his claim which had been disallowed when 
the earlier payment was made. 

14. COST OF ADDITIONAL WORK TO REMEDY CONSTRUCTION DEFICIENCIES, CAMPBELLTON, N.B. In 

September 1959 a contract was awarded by the Department of Public Works for the 
construction of a public building at Campbellton. During construction settlement of 
such magnitude occurred that complete underpinning of the structure, including the 
driving of piles, was found necessary. The contractor maintained that the Department 
of Public Works should accept all responsibility for the settlement problem because the 
design did not make proper allowance for the poor soil encountered. Although this was 
disputed by the Department, its representatives on the site had not objected to the way 
in which the work had been carried out and a payment of $46,055 was made to the 
contractor, being 50$> of the $92,110 cost of the additional work required. 

15. ADDITIONAL COSTS RESULTING FROM CONSTRUCTION DELAYS, WINDSOR, ONT. In 1958 the 

Department of Public Works entered into a contract for the alteration and construction 
of an addition to the Federal Building at Windsor. After excavation work was under 
way, it became apparent that the soil loading was going to be much more critical than 
had been indicated by the borings taken on the site prior to the award of the contract. 
Extensive foundation design changes were found to be necessary, resulting in the work 
being delayed for more than four months. Further delays, due primarily to alterations 
in layout requested by two departments and changes in connection with the fire protec- 
tion system, lighting fixtures and the design of the main lobby, accounted for an addi- 
tional delay of over four months. The contractor was paid $56,443 during 1962-63 to 
compensate him for costs incurred as a result of these delays. 

16. additional costs due to construction delay, Halifax. In 1961 the Department of 
Public Works entered into a contract for the construction of an Inspection Laboratory 
for the Department of Fisheries at Halifax. After the specified pile driving was about 
60% complete, an old timber wharf was encountered. When the timbers were removed, 
a test pile was driven and the unsatisfactory result led to a re-design of the pile 
foundation and a delay of nearly two months. During the year a payment of $8,451 (of 
which all but $272 was non-productive in nature) was made to the contractor to 
compensate him for costs incurred as a result of the delay. 

17. cost of maintaining unused office space, london, England. Item 15 of paragraph 115 
of last year's Report referred to rental and maintenance costs which had been incurred 
in the last half of the fiscal year 1961-62 on a vacated leasehold property in London, 
England. During the year under review the Department of Public Works continued to 
be unable to dispose of the residue of the leasehold interest in the property on satis- 
factory terms, and rental and other expenses in excess of $27,000 were incurred in respect 
of the unused premises. The interest has been disposed of since March 31, 1963. 

18. excavation costs at site abandoned, port hardy, b.c. In 1960 the Department of Public 
Works entered into a contract for the construction of detachment quarters for the 
Royal Canadian Mounted Police at Port Hardy. Shortly after construction began the 



AUDITOR GENERAL'S REPORT 153 

contractor encountered higher sub-soil rock, a higher water table and lower grades than 
had been shown by the site survey and report. As a result, work was stopped pending 
a re-design of foundations. Because it now considered the site unsuitable, the Force 
decided to relocate the detachment unit at the Port Hardy airport. The contractor was 
paid $8,787 in respect of the non-productive costs incurred at the original site. 

19. COST OF DELAY IN CONSTRUCTION OF SHOPS BUILDING, SAINT JOHN, N.B. In May 1960 the 

Department of Public Works entered into a contract for the construction of a shops 
building for the Department of Transport at Saint John. The contractor moved on to 
the site and began preparation for the construction of the building, but when applica- 
tion was made to the municipality for a building permit it was refused because the siting 
of the building did not conform to a set-back by-law. As the Department of Transport 
did not wish to re-site the building, approximately a month was required for negotiations 
which led to the waiving of the by-law requirement. Work was suspended during this 
period and, in the year under review, the contractor was paid $2,450 for costs incurred 
by him as a result of the delay. 

20. cost of delay in construction of building, Winnipeg. In 1960 the Department of 
Public Works entered into a contract for the construction of an addition to the Science 
Service Laboratory of the Department of Agriculture at Winnipeg. Although test borings 
had been carried out at the site of the addition, work under the contract revealed 
unexpected sub-soil conditions and a delay was necessary while a revised design, 
compatible with the actual conditions encountered, was prepared. The contractor's 
progress was also delayed because of indecision (after excavation had been started at 
one site) as to where an associated building should be located. In January 1963 the 
contractor was paid $9,149 to compensate him for additional expenses incurred on the 
basis of a total delay of three months. 

21. cost due to change in siting of breakwater extension, freeport, n.s. On June 5, 1962 
the Department of Public Works awarded a contract at an estimated cost of $128,750 for 
a breakwater extension, to be built of quarried rock, at Freeport. Two weeks later, after 
the contractor had moved his equipment to Freeport and opened up a quarry, local 
fishermen raised objections to the proposed site, although they had earlier supported 
the plan. They now wished the protection to be a separate structure rather than an 
extension, and to be located 300 feet west of the existing breakwater. The contractor 
was instructed to suspend operations, and a few days later the project was terminated. 
In February 1963 a payment of $55,741 was made in settlement of the contractor's 
claim for costs in connection with the terminated work. 

22. additional costs due to delay in decision regarding relocation of power lines, 
Ottawa. In November 1959 a contract was entered into by the Department of Public 
Works for the construction of storm sewers, grading, roads, parking areas, etc., on the 
Riverside Drive development at Ottawa. After the job was completed the contractor 
submitted a claim for additional reimbursement because of delays to which the work 
had been subjected pending relocation of power lines. The Treasury Board had originally 
approved of expenditure for relocating the power lines overhead, but it was not until 
July 1960, after extended negotiations involving the City of Ottawa, the National 
Capital Commission and a public utility, that approval was given to place them under- 
ground. 

In the year under review a payment of $70,775 was made to the contractor to compensate 
him for costs incurred due to the delay in reaching the decision to relocate power lines 
underground. 



154 AUDITOR GENERAL'S REPORT 

23. COST 01 i NUBED plans fou BUILDING improvement, Ottawa. During the summer months, 
steam requirements for Parliament Hill in Ottawa are met from the boiler room in the 
Mast Block. It having become apparent that the existing facilities of the boiler room 
were inadequate, consultants were commissioned in 1961 to design improvements. 
Although in due course they produced plans and specifications, these would have 
involved expenditure estimated at $165,000, and the work was carried out to a simpler 
design, prepared by the Department of Public Works, at a cost of $46,000. During the 
year under review the consultants agreed to accept a settlement of $1,672 on the basis 
of the actual cost incurred. 

24. COST OF CHANGING FROM BRICK TO STONE, THE FACING OF A BUILDING, HAMILTON. In 1961 

the Department of Public Works entered into a contract for the construction of an 
addition and alterations to a postal terminal at Hamilton. Although the existing build- 
ing was faced with stone, the plans for the addition called for a red brick facing. After 
the brick had been laid, local civic officials and others objected strongly to the appear- 
ance of the elevation of the addition, which faced a principal street, and requested that 
it be faced with stone to match the original building. This was done in 1962, with 
Treasury Board approval, a cost of $2,837 being incurred in supplying, installing and 
removing the brick, which had no salvage value. 

25 . COST OF PARTIAL CONSTRUCTION OF BREAKWATERS ABANDONED DUE TO SHORTAGE OF SUITABLE 

rock, st. bride's, nfld. A contract for repairs and improvements to two breakwaters at 
St. Bride's was entered into by the Department of Public Works in 1961. A phase of 
the work was the placing of quarry run rock fill and armour stone on the seaward faces 
of both breakwaters. By mid-1962, when the contractor had placed 4,654 tons of rock 
in position, of an estimated total requirement of 35,000 tons, he stopped work, claiming 
that all possible sources of rock in the vicinity of the work had been exhausted and he 
did not see how he could complete the project. The value of the work performed up to 
that point, at the contract unit rates, was $73,034. After an investigation by depart- 
mental officials had established the unlikelihood of suitable rock being available within 
a reasonable distance of the site, the contract was terminated at a total cost of $127,041, 
so that a non-productive payment of about $54,000 resulted. 

In May 1963 the National Research Council was provided with funds to carry out a 
study of the situation at St. Bride's and to recommend the most suitable type of con- 
struction in order to complete the work contemplated in the terminated contract. 

26 . cost of construction delays due to faulty drawings, Ottawa. During the construction 
of additions and alterations to the Dominion Bureau of Statistics building, it became 
apparent that the as-built drawings for the existing building were inaccurate. As the 
work had been designed to correlate with the existing structure as detailed in these 
drawings, the re-design of all connection details was required and completion of the 
contract was delayed. During the year under review the contractor was paid $4,780 for 
costs resulting from delays caused to a considerable extent by the faulty drawings. 

27. preliminary costs of proposed wharf not proceeded with, glace bay, n.s. In 1961 the 
Department of Public Works entered into a contract for the construction of a wharf 
for the benefit of the fishing industry at Glace Bay. The site of the proposed structure 
had been acquired by the Department in 1934 and in the interim a number of fishermen 
had been permitted to use the property, where they had provided themselves with shacks 
and small private wharves. Subsequent to the award of the contract, strenuous excep- 
tion to the choice of the site was taken by a group of local inshore fishermen because 



AUDITOR GENERAL'S REPORT 155 

several of them would thereby be deprived of the use of their existing wharves and 
sheds. After material was delivered to the site and the contractor attempted to com- 
mence work it became apparent that he would be unable to carry out the project unless 
provided with police protection. Municipal officers declined to arrange for this unless 
an incident occurred which would justify intervention. Although the Department offered 
to alter its plan by moving the approach to the wharf so that it would be unnecessary to 
remove the fishermen's sheds, and to have dredging carried out to provide mooring space 
for the inshore fishermen, the latter remained adamant that a wharf should not be built 
on the site. 

Early in 1962 the Department informed the contractor of its decision to cancel the 
contract and in due course he was paid $37,596 for expenses incurred in the abortive 
attempt to proceed with the project. As the Department has found it possible to utilize 
material valued at about $14,500 taken over from the contractor, the financial conse- 
quence of the incident was a non-productive cost of approximately $23,000. 

28. PRELIMINARY COSTS INCURRED ON WHARF NOT PROCEEDED WITH, SEPT ILES, QUE. In 1961 

the Department of Public Works engaged a firm of consulting engineers to prepare 
plans and specifications for the first stage of a new wharf at Sept lies. In March 1962 
the Department sought Treasury Board approval for expenditure already incurred 
under departmental authority and in addition, for what would be involved in the prep- 
aration of the necessary designs, etc., for the second and final stage of the proposed 
work. The Department was informed that the Board regarded it as premature to pro- 
ceed with the preparation of detailed plans when there remained considerable uncer- 
tainty as to whether a new public wharf at Sept lies would be required in the near 
future. Further, the Board felt that should changing traffic conditions demonstrate the 
need for a wharf at some future date, existing plans might prove to be outdated and 
unsuitable. Accordingly, the engagement of the consultants was terminated and during 
the year under review they were paid $13,743 for services already rendered. 

29. additional costs due to construction delay, inuvik, n.w.t. In 1958 the Department 
of Public Works entered into a contract for the construction of various buildings, 
including a substantial number of housing units, at Inuvik. The contractor had planned 
to bring work on the housing units in 1958 to a point which would enable him to com- 
plete this phase of the project in 1959. Because the cut-off elevations for piling could 
not be given until the elevations for the utilidor system serving the area had been 
determined, he was unable to proceed until the late autumn of 1958. The end result of 
the delay was an additional three months of winter work in 1959-60. In November 1962 
the contractor was paid $53,887 to compensate him for costs incurred because of the 
delay. 

30. consultants' fees in respect of abandoned work, sault ste. marie, ont. In 1960 the 
Treasury Board granted approval in principle to the construction of an air terminal 
building by the Department of Transport at the Sault Ste. Marie Airport, at the same 
time stipulating that the estimated total cost of $610,000 was not to be exceeded. Con- 
sultants retained by the Department prepared sketch plans, working drawings and 
specifications prior to tenders being invited for the construction work. When the lowest 
tender received and a revised tender based on modified plans were both in excess of the 
prescribed ceiling, the Department was instructed by the Treasury Board to cancel the 
tender call and re-design the building at a lower cost. During the 1962-63 fiscal year a 
final payment of $12,310 to the consultants in respect of the abandoned work brought 
the total non-productive cost for consultants' services and expenses to $26,608. 

69960-3—11 



156 AUDITOR GENERAL'S REPORT 

31. conmmim. BWICEB, UK iiHMiNAL building, Winnipeg. In 1957 the Department of 
Transport engaged a firm of consultants to provide architectural and consulting engi- 
neering services in connection with the construction of an Air Terminal Building at the 
Winnipeg Airport. On departmental instructions, sketch plans were completed based 
on a design which incorporated 12 gate positions and was estimated to cost in excess 
of $15 5 million. In due course tenders were called for foundation work and site prep- 
aration. When the Treasury Board was informed of the results of the tender call, the 
Department was requested to review the whole project with a view to reducing the 
over-all cost. The result was that a new concept for the proposed building was agreed 
to and the consultants were requested to produce a design reducing the size of the 
building to accommodate 8 gate positions only, at a substantial reduction in cost. 

In 1900 the consultants were paid 182,556 for services in connection with the original 
concept of the building. Primarily this amount represented the difference between 1% 
of the estimated amount involved in the original concept and 1% of the estimated 
cost of the revised concept. In March 1963 the Treasury Board authorized a further 
payment of $34,386, on the quantum meruit basis, in full settlement of the consultants' 
claim for additional compensation, bringing the non-productive outlay to $116,942. 

32. cost of delays ix construction of airport facilities, Montreal. In 1959 the Depart- 
ment of Transport entered into a contract for the excavation, foundation waterproofing 
and plumbing works for fingers, tunnels and aeroquay for the terminal building at the 
Montreal International Airport. In May 1961 the contractor requested compensation 
for costs claimed to have been incurred by him as a result of delays caused by changes 
ordered by the Department in the plans and specifications after the work was under 
way. Following detailed consideration of the contractor's claim by the Department, 
in August 1962 he was paid an additional amount of $44,546 in settlement of his much 
larger claim. 

33 . cost of landline circuit not put into use, val d'or, que. In 1959 the Direct Controller 
to Pilot Communications (D.C.P.C.) program of the Department of Transport included 
plans for a landline circuit between Rouyn and Val d'Or, which would permit direct 
communication between aircraft and the traffic control tower at Val d'Or through the 
medium of facilities located at Rouyn. A telecommunication company was requested 
to arrange for provision of the landline in 1960. In April 1962, when the circuit had not 
been commissioned because a building had not been constructed at Rouyn to house the 
departmental equipment, the company was informed that the landline was no longer 
required because the airport at Val d'Or was being taken over by the R.C.A.F. During 
the year the company was paid $2,698 to cover its out-of-pocket expenses in connection 
with the provision of a circuit which was never used. 

34. PRELIMINARY EXPENSES INCURRED ON PROPOSED RAILWAY CROSSING BRIDGE, COBOURG, ONT. 

In 1957 the Board of Transport Commissioners authorized the Town of Cobourg to 
construct an overhead bridge to replace existing level crossings across the rights of way 
of two railways within the town limits. A firm of consulting engineers was engaged by 
the Town to plan the structure but by 1961, before construction of a bridge had been 
carried out, the Board agreed with the municipality's view that changed conditions at 
the location made a bridge unnecessary. During the year under review the Railway 
Grade Crossing Fund was charged with $19,287, representing a payment to the munici- 
pality of sixty percent of the account rendered to it by the consultants for their services 
and expenses in connection with the cancelled work. 



AUDITOR GENERAL'S REPORT 157 

35. new wharf and shed facilities, corner brook, nfld. In paragraph 115 (item 14) of 
last year's Report reference was made to an unusual non-productive payment of 
$66,750 in connection with the site for new wharf and shed facilities at Corner Brook. 
During the year under review an additional non-productive payment was made in 
connection with the same project. In September 1961 the Canadian National Railways, 
for whom the facilities were being provided, informed the Department of Public Works 
that the plans for an ancillary services structure were incompatible with an efficient 
shed operation, but work on the shed had commenced before a decision had been reached 
as to the necessity for the suggested plan changes. Late in December 1961 the contractor 
was instructed to cease work on this phase of his operation until plans had been revised 
and nearly three months elapsed before he was instructed to resume work. In February 
1963 he was paid $20,050, from funds provided by the Department of Transport, as 
reimbursement of the cost of maintaining a work force on the site during the idle period. 

36. additional costs due to construction delay, edmonton. In 1960 the Department of 
Transport entered into a contract for the construction of a terminal services building, 
including the installation of equipment, for the Edmonton International Airport, to be 
completed by October 31st of that year. The specifications available to bidders stated 
that "separate tenders have been called for the hot water generators and the successful 
general contractor will later be asked to absorb and include these hot water generators 
in his contract". The placing of a contract for the equipment was delayed because of 
the time involved in assessing the proposal of the low bidder and delivery was not 
required until January 31, 1961. Further delays were caused by difficulties which arose 
between the equipment contractor and his suppliers, so that final deliveries were not 
made until the following June. The completion of the construction contract was thus 
delayed until July 1961. 

During the year under review the contractor was paid $18,619 in compensation for 
increased labour costs, winter work conditions and extended overhead costs during the 
period of several months when he was unable to proceed with the work as planned. 

37. architects' plans not used, Vancouver. In 1958 a firm of architects was engaged by 
the Department of Public Works to prepare plans and specifications for, and to super- 
vise construction of, a therapeutic pool, an exercise room and an extension of the out- 
patient department for the Department of Veterans Affairs at the Shaughnessy Hospital, 
Vancouver. While working drawings were being prepared, the Department of Veterans 
Affairs was making further investigations concerning the latest developments in the 
design of therapeutic pools. The result was that the architects were requested to make 
changes in their plans and two sets of largely-completed drawings were abandoned. In 
August 1962 they were paid $6,700 on a quantum meruit basis for services rendered 
in preparing the abandoned plans. 



158 



AUDITOR GENERALS REPORT 



APPENDIX 2 



SUMMARY OF EXPENDITl RE RY STANDARD ORJECTS 
FOR THE YEAR ENDED MARCH 31, 1963 

(with comparable figure?, for the preceding fiscal year) 

(in millions of dollars) 



1962-63 



1961-62 



Increase or 
decrease (— ) 



Civil salaries and wages 

( i\ ilian allowances 

Pay tad allowances, defence forces and R.C.M. Police 

Professional and .special services 

Travelling and removal expenses 

Freight , express and cartage 

Postage 



Telephone, telegrams and other communication services 

Publication of departmental reports and other material 

Exhibits, advertising, films, broadcasting and displays 

Office stationery, supplies, equipment and furnishings 

Materials and supplies 

Puddings and works, including land — 

( 'onst ruction or acquisition 

Repairs and upkeep 

1 lentals 

Equipment — 

( 'oust ruction or acquisition 

Repairs and upkeep 

Rentals 

Municipal or public utility services 

Contributions, grants, subsidies, etc., not included elsewhere 

Pensions, superannuation and other benefits 

All other expenditures (other than special categories) 

Interest on public debt, etc 

Subsidies and special payments to the provinces 

Family allowance payments 

Old age assistance, blind persons and disabled persons allowances and unemploy- 
ment assistance 

Veterans' disability pensions, etc 

Other payments to veterans and dependents 

Government's contribution to the Unemployment Insurance Fund 

Hospital insurance and general health grants 

Trans-4 !anada Highway contributions 

Movement of mail by land, air and water 

Deficits — Government-owned enterprises 



Less: Expenditure recovered. 
Net Total Expenditure 



864.4 

16.1 

681 B 

91.1 
63.3 
11.1 

6.3 
29.3 

9.0 

13.2 

23.1 

180.2 

289.3 
52.2 
17.2 

285.6 
143.9 
6.6 
64.3 
814.9 
142.6 
154.2 
917.8 
275.3 
531.6 

159.2 
176.0 
93.1 
57.3 
387.0 
29.2 
63.3 
64.2 



$6,615.8 
45.5 



830.0 
14.8 

574.5 
95.2 

■ 66.9 
12.2 
6.2 
21.7 
9.4 
13.2 
26.1 

171.6 

328.1 
60.2 
16.3 

357.2 

148.9 

6.9 

57.5 
637.2 
134.8 

88.5 
839.0 
541.2 
520.8 

143.4 
177.9 
87.3 
55.6 
332.9 
36.5 
62.1 
84.1 



$6,558.2 
37.6 



t 34.4 

1.3 

9.4 

-4.1 

-3.6 

-1.1 

.1 

7.6 

- .4 
.0 

-3.0 
8.6 

-38.8 

-8.0 

.9 

-71.6 
-5.0 

- .3 
6.8 

177.7 

: 7 - 8 

65.7 

78.8 

-265.9 

10.8 

15.8 

-1.9 

5.8 

1.7 

54.1 

-7.3 

1.2 

-19.9 



$ 57.6 
7.9 



$6,570.3 



$6,520,6 



$ 49.7 



AUDITOR GENERAL'S REPORT 



159 
APPENDIX 3 



SUMMARY OF EMPLOYEES AUTHORIZED FOR THE PUBLIC SERVICE 
BY DEPARTMENTS, CROWN CORPORATIONS AND OTHER INSTRUMENTALITIES 

March 1963 in comparison with March 1962 



Employees Authorized 



March 1963 March 1962 



Increase 
(Decrease) 



DEPARTMENTS (Notes 1 and 2)— 

Agriculture — 

Administration 

Research 

Production and marketing 

Board of Grain Commissioners 

Special 

Canadian Government Elevators 

Atomic Energy Control Board 

Auditor General's Office 

Board of Broadcast Governors 

Chief Electoral Officer 

Citizenship and Immigration — 

Administration 

Citizenship 

Immigration 

Indian Affairs 

Civil Service Commission 

Defence Production 

External Affairs — 

Administration 

Representation abroad 

International Joint Commission 

Other international commissions 

External Aid Office 

Finance — 

Departmental administration 

Comptroller of the Treasury 

Administration of various Acts 

Tariff Board 

Royal Canadian Mint 

Fisheries — 

Administration and general services 

Field services 

Special 

Forestry- 
Departmental administration 

Forest research branch 

Forest entomology and pathology branch 
Forest products research branch 



432 


399 


33 


3,881 


3,846 


35 


3,588 


3,547 


41 


939 


940 


(1) 


1,290 


1,277 


13 


241 


231 


10 


10,371 


10,240 


131 


15 


8 


7 


179 


159 


20 


40 


35 


5 


16 


16 


- 


200 


191 


9 


217 


217 


— 


2,147 


2,127 


20 


2,645 


2,523 


122 


5,209 


6,058 


151 


775 


736 


39 


1,647 


1,587 


60 


843 


820 


23 


1,459 


1,380 


79 


12 


12 


— 


23 


15 


8 


104 


103 


1 


t.W 


2,330 


in 


281 


263 


18 


4,960 


4,898 


62 


250 


251 


(1) 


34 


32 


2 


207 


203 


4 


5,732 


6,647 


85 


225 


210 


15 


1,628 


1,575 


53 


798 


748 


50 


2,651 


2,533 


118 


182 


178 


4 


360 


345 


15 


547 


499 


48 


185 


177 


8 


1,274 


1,199 


75 



69960-3—12 



160 AUDITOR GENERAL'S REPORT 

SUMMARY OF EMPLOYEES AUTHORIZED FOR THE PUBLIC SERVICE— Continued 



Employees Authorized 



March 1963 March 1962 



Increase 
(Decrease) 



DEPAR ttlENTS (Continued) 

Governor General and Lieutenant Governors 

Insurance 

ice — 

I Vpart incut 

Penitentiaries 

iur — 

Department 

Unemployment Insurance Commission 

ialation— 

ate 

House ol ( 'ommons 

Library of Parliament 

Mines and Technical Surveys- 
Administration 

and Mapping Branch 



M ines Branch 

International Boundary Commission 

Dominion ( !oal Board 

Other 

National Defence (Civilian Staffs) — 

Departmental administration 

Inspection .services 

Roj al ( 'anadian Xavy 

Canadian Army 

Royal ( anadian Air Force 

Defence research and development 

National Gallery 

National Health and Welfare — 

Departmental administration 

National Health Branch 

Welfare Branch 

General 

Fitness and amateur sport 

National Research Council 

National Revenue — 

Customs and Excise Divisions 

I nation Division 

Tax A ppeal Board 

Northern Affairs and National Resources — 

1 leparf mental administration 

National Parks Branch 

National parks and historic sites 

Water Resources Branch 

Nori hern Administration Branch 

Yukon Territory 

Northwest Territories and other field services 

National Museum of Canada 

( 'anadian ' Government Travel Bureau 



17 


17 


110 


108 


489 


429 


3,042 


2,854 


3,531 


3, £83 


679 


670 


10,888 


10,510 


11,567 


tt,180 


129 


123 


615 


580 


60 


60 


804 


763 


258 


241 


1,711 


1 , 509 


553 


512 


678 




14 


14 


111 


19 


312 


273 


3,645 


3.S8S 


681 


663 


1,414 


1,409 


11,681 


11,702 


19,855 


20,022 


16,381 


15,789 


2,959 


2,926 


52,971 





67 



72 



368 


357 


3,985 


3,816 


885 


MIS 


188 


173 


11 


— 


6,437 


S.S44 


3,389 


3,278 


8,188 


8,237 


6,895 


6,784 


22 


20 


5,105 


15,041 


205 


204 


159 


143 


1,552 


1,491 


272 


244 


762 


719 


60 


56 


539 


509 


109 


103 


113 


102 


3,771 


3,671 






AUDITOR GENERAL'S REPORT 161 

SUMMARY OF EMPLOYEES AUTHORIZED FOR THE PUBLIC SERVICE— Continued 



Employees Authorized 



March 1963 March 1962 



Increase 
(Decrease) 



DEPARTMENTS (Concluded) 

Post Office- 
Departmental administration 

Operations 

Financial services 

Privy Council Office 

Public Archives and National Library- 
Public Archives 

National Library 

Public Printing and Stationery 

Public Works — 

General administration 

Maintenance and operation of public buildings 

Harbours and rivers engineering service 

Development engineering service 

Royal Canadian Mounted Police (Civilian Staff). 

Secretary of State — 

Departmental administration 

Companies Division 

Trade Marks Division 

Bureau for Translations 

Patent and Copyright Office 

Trade and Commerce — 

General administration 

Dominion Bureau of Statistics 

National Energy Board 

1961 Decennial Census of Canada 

Transport — 

Departmental administration 

Canal services 

Marine services 

Railway and Steamship services 

Air services 

Air Transport Board 

Board of Transport Commissioners 

Canadian Maritime Commission 

Veterans Affairs — 

Department 

Canadian Pension Commission 

Soldier Settlement and Veterans' Land Act. . 

Total, Departments 



CROWN CORPORATIONS (Note 3)- 

Atomic Energy of Canada Limited- 
Professional 

Non-professional 

Hourly rate 



338 
27,875 

408 
28,621 

212 



145 
57 



1,925 



1,427 



577 
1,156 
1,060 
2,793 



338 
27,202 

404 
27,944 

197 



126 

48 

m 

1,964 



1,830 


1,720 


5,954 


6,060 


557 


574 


214 


209 


8,555 


8,563 



1,201 



63 


60 


3 


25 


25 


— 


52 


52 


— 


321 


322 


(1) 


363 


327 


36 


824 


786 


38 


1,712 


1,577 


135 


1,968 


1,900 


68 


73 


57 


16 


325 


1,061 


(736) 


4,078 


4,695 


(5/7) 


669 


634 


35 


469 


467 


2 


3,892 


3,773 


119 


7 


7 


— 


10,438 


9,588 


850 


90 


79 


11 


179 


175 


4 


26 


24 


2 


15,770 


14,747 


1,023 


13,198 


13,152 


46 


379 


387 


(8) 


803 


903 


(100) 


14,380 


14,442 


(.62) 


206,658 


202,512 


4,146 



553 
1,138 
1,045 
2,736 



69960-3— 12 J 



162 AUDITOR GENERAL'S REPORT 

SUMMARY OF EMPLOYEES AUTHORIZED FOR THE PUBLIC SERVICE— Continued 



CROWN CORPORATIONS (Continued) 

Canadian Arsenals Limited — 

Salaried 

Hourly rate— productive 

Hourly rate — non-productive 

( 'anadian Broadcasting Corporation 

Canadian Commercial Corporation 

Canadian National Railways 

Canadian Overseas Telecommunication Corporation — 

Administrative 

Operating 

Canadian Patents and Development Limited 

Canadian World Exhibition Corporation 

Central Mortgage and Housing Corporation — 

Regular 

Contract and casual 

Crown Assets Disposal Corporation 

Defence Construction (1951) Limited 

Eldorado Aviation Limited 

Eldorado Mining and Refining Limited — 

Ad ministrative 

Operating 

Research 

Export Credits Insurance Corporation 

Farm Credit Corporation 

The National Battlefields Commission 

National Capital Commission — 

Administrative, Engineering, etc 

Prevailing rate — permanent 

Construction employees for specific works 

National Centennial Administration 

National Harbours Board — 

Salaried — Permanent, seasonal and temporary 

Prevailing rate — Permanent, seasonal and temporary 

Northern Canada Power Commission — 

Administrative 

Operating 

Northern Transportation Company Limited 



Employees Authorized 



Maroh 1963 March 1962 



!ll 



861 
652 
572 

,085 

,673 

81 

561 



110 
339 
449 



,953 

67 

,020 

99 

297 

28 

85 
702 

46 
833 

58 

468 

22 



113 
297 
125 

535 



869 
458 
327 



37 
145 
182 

37 



976 

787 

672 

2,435 

7,828 

69 

94,216 



92 
323 
416 



1,977 

93 

2,070 

99 

441 

32 

91 
849 

43 
983 

43 

388 

23 



110 
287 
172 
569 



862 
1,485 
2,347 



37 
150 
187 

38 



Increase 
(Decrease) 



(115) 
(135) 
(100) 
(550) 

(155) 

12 

(2,655) 



18 
16 
34 



(24) 
(26) 
(60) 



(144) 
(4) 

(6) 
(147) 

3 
(150) 

15 

80 

(1) 



3 

10 
(47) 
(34) 

8 



7 
(27) 
(t0) 



(5) 
(S) 

(1) 



AUDITOR GENERAL'S REPORT 163 

SUMMARY OF EMPLOYEES AUTHORIZED FOR THE PURLIC SERVICE— Concluded 



Employees Authorized 



March 1963 March 1962 



Increase 
(Decrease) 



CROWN CORPORATIONS (Concluded) 

Polymer Corporation Limited — 

Salaried 

Hourly rate 

The St. Lawrence Seaway Authority — 

Administrative and Engineering 

Operations 

Maintenance 

The Seaway International Bridge Corporation Ltd 

Trans-Canada Air Lines — 

Flying personnel 

Other personnel 

Total, Crown Corporations 

OTHER INSTRUMENTALITIES (Note 3)— 

Bank of Canada 

The Canada Council 

The Canadian Wheat Board 

The Custodian 

Industrial Development Bank 

National Film Board 

National Productivity Council 

Total, Other Instrumentalities 

Total, Departments, Crown Corporations and Other Instrumental- 
ities 



1,159 


958 


201 


1,887 


1,735 


152 


3,046 


2,693 


SSS 


257 


250 


7 


669 


667 


2 


476 


575 


(99) 


1,402 


1,492 


(90) 



17 



1,445 
10,168 
11,613 



15 



1,538 
10,220 
11,758 



337,132 



336,123 



(93) 
(52) 

am 



127,647 


130,881 


(3,234) 


1,064 


980 


84 


33 


32 


1 


582 


619 


(37) 


17 


17 


— 


491 


427 


64 


624 


645 


(21) 


16 


10 


6 


2,827 


2,730 


97 



1,009 



NOTES: 

(1) The boards, commissions, etc., shown separately under departmental headings, are those for which descriptive out- 
lines are included in the publication "Organization of the Government of Canada". 

(2) The numbers of employees shown for the various departments are the approved "man-year" figures appearing in the 
Details of the Estimates, including seasonal, part-time and casual employees. 

(3) The number of employees shown for Crown corporations and other instrumentalities are the "actual strength" figures. 
The following additional information is available with respect to establishments authorized by the executive boards 
in several cases: 

March March Increase 

1963 1962 (Decrease) 

Canadian Broadcasting Corporation 7,892 8,109 (217) 

National Capital Commission — 

Administrative, Engineering, etc 129 113 16 

Prevailing rate — seasonal 514 474 40 

National Centennial Administration 30 — 30 

National Film Board 694 684 10 



EXHIBITS 

(as published in the Public Accounts) 

Statement of Expenditure and Revenue for the Fiscal Year ended March 31, 1963 . . . Exhibit 1 

Statement of Assets and Liabilities as at March 31, 1963 Exhibit 2 

Summary of Appropriations, Expenditures and Unexpended Balances by Depart- 
ments for the Fiscal Year ended March 31, 1963 Exhibit 3 

Summary of Revenue by Main Classifications and Departments for the Fiscal Year 

ended March 31, 1963 Exhibit 4 



166 AUDITOR GENERALS REPORT 



THE GOVERNMENT 

STATEMENT OF EXPENDITURE AND REVENUE FOR 

(with comparative figures for 

EXPENDITURE 

Fiscal year ended 
March 31, 1963 March 31, 1962 



Agriculture J 234,826,957 $ 286,683,751 

Atomic Energy 63,205,370 34,711,614 

Auditor General's Office , 1,218,834 1,069,939 

Hoard of Broadcast ( iovernors 353,913 311,515 

( 'anadian Broadcasting Corporation 80,815,947 78,160,805 

Office of the Chief Electoral Officer 11,815,352 366,474 

( litizenship and Immigration 06,237,381 05,016,446 

Civil Service Commission 4,792,379 4,738,709 

1 defence Product ion 28,837,778 23,929,926 

I Menial Vifair> 85,196,665 95,571,260 

Finance — 

Public 1 )ebt charges 917,787,239 838,986,401 

Fiscal, tax-sharing, subsidy and other payments to provinces 275,302,387 541,182,624 

I ii her expenditure 161,990,212 131 ,784,164 

1,355,079,838 1,511,953,189 

1 isheries 23,292,700 23,097,882 

Forestry 16, 174,971 14,737,929 

Governor General and Lieutenant-Governors 467,638 474, 156 

Insurance 1.422,120 1,358,022 

Justice 34 , 531 , 655 32, 580, 184 

Labour 348,235,508 168,884,766 

Legislation 8, 108,063 8,438,007 

Mines and Technical Surveys 71,130,401 67,599,290 

National Defence — 

Royal ( anadian Navy 269,438,503 272,005,671 

( anadian Army 443, 163,371 442,414,649 

Royal ( lanadian Air Force 713,884,440 781,421,960 

Defence research and development 41,089,007 40,444,658 

( it her expenditure 107,278,340 89,817,374 

1,574,853,661 1 ,626, 101,, 312 

National Film Board 5,610,630 5,143,773 

National Gallery 987,271 1,053,582 

National Health and Welfare — 

Family allowances 531,566,349 520,781,193 

( M her expenditure 591,854,334 519,494,503 

1,123,420,683 1,040,275,696 

National Research < louncil, including the Medical Research Council 40,596,727 38,849,279 

National Revenue 78,607,667 75,330,063 

\ oi t hern A ffairs and National Resources 87, 563, 579 79, 367, 605 

Post < iffice 189,344,410 185,003,359 

Privy < louncil 5,016,879 4,479,601 

Public Archives and National Library 1 ,035,471 977,899 

Public Printing and Stationery 3,977,442 4,010,195 

Public Works 171,384,711 188,813,326 

Royal Canadian Mounted Police 65,424,359 60,497,037 

Secretary of State 4,788,258 4,994,907 

Trade and Commerce 30,364,666 42,447, 107 

Transport 416,019,472 410,391,113 

Veterans Affairs— 

Pensions 175,901,737 177,869,638 

Other expenditure 159,700,712 155,353,268 

335,602,449 SSS,ttt,906 



Total expenditure 6, 570, 341 , 805 6, 520, 645, 674 

Budgetary deficit -691 , 632, 927 -791 , 021 , 950 

5,878,708,878 5,729,623,724 



H. R. BALLS, K. H. BRYCE, 

Comptroller of the Treasury. Deputy Minister of Finance. 



AUDITOR GENERAL'S REPORT 



167 
EXHIBIT 1 



OF CANADA 



THE FISCAL YEAR ENDED MARCH 31, 1963 



the preceding fiscal year) 



REVENUE 



Fiscal year ended 
March 31, 1963 March 31, 1962 



Tax revenues — 
Income tax — 

Personal' 1 ' $1,744,626,029 

Corporation") 1, 182,836,979 

On dividends, interest, etc., going abroad 129, 137,372 

Excise taxes — 

Sales"* 805,970,471 

Other 260, 378,073 

Customs duties 644,992,131 

Excise duties 381 , 865, 989 

Estate tax<« 87, 143,312 

Miscellaneous 27,028 

5,236,977,384 

Non-tax revenues — 

Return on investments 311,860,829 

Post Office— net postal revenue 192,771,815 

Refund of previous years' expenditure 22,392,490 

Services and service fees 46, 185, 576 

Proceeds from sales 26, 531 , 005 

Privileges, licences and permits 25,008,212 

Bullion and coinage 9,404,342 

Premium, discount and exchange 

Miscellaneous 7,577,225 

641 , 731 , 494 



(1) Excluding tax credited to the old age security fund- 

1962-63 



Personal income tax 273, 650, 000 

Corporation income tax 115,250,000 

Sales tax 302,238,927 



1961-62 

258,950,000 
100,125,000 
284,879,238 



$1,792,655,915 

1,202,053,695 

112,305,709 



759,677,970 

262,526,380 

534,515,544 

362,798,655 

84,579,383 

51,495 

6,111,164,746 



307,502,187 

183,678,937 

18,162,831 

42,452,991 

25,901,810 

23,271,195 

7,965,169 

1,771,425 

7,752,433 

618,458,978 



(2 > Includes duties levied under the Dominion Succession Duty Act. 



Total revenue 5,878,708,878 



5,729,623,724 



Auditor General's Certificate 

The above Statement has been examined in accordance with the provisions of the Financial Administration Act. I have 
obtained all the information and explanations I have required and, subject to the comments in my report to the House of Com- 
mons, I certify that the Statement is in agreement with the accounts maintained by the Department of Finance and that, in 
my opinion, it exhibits a correct view of the expenditures and revenues of Canada for the year ended March 31, 1963 

A. M. HENDERSON, 
Auditor General. 



168 



AUDITOR GENERAL'S REPORT 



THE GOVERNMENT 



STATEMENT OF ASSETS AND 
(with comparutive figm 



ASSETS 



March 31, 1963 



1 . ' 'urrent BASSl 

(o) Cash, schedule A $ 511,347,154 

Departmental working capital advances and revolving 

lands, schedule B 243,207,010 

(r) Securities held for the .securities investment account at 

amortised cost 33,480,163 

(<i) ' I schedule C 32, 176,896 

8g0,271,m 

2, Advances to the exchange fund account — (value of investments 

from advances on basis of closing exchange rates: March 31, 

1963, 12,757,046,289; March 31, 1962, $1,759,690,147) 2,736.000,000 

.'!. Sinking fund and other investments held for retirement of un- 
matured debt, schedule D 22,311,845 

4. Loans to, and investments in, Crown corporations, schedule E. 4,468, 119,368 

5 Loans to national governments, schedule F 1,210,776,466 

6. < rther loans and investments, schedule G 

Subscriptions to capital of, and working capital advances 

and loans to, international organizations 693,997,679 

(b) Loans to provincial governments 116,817,625 

(r) Veterans land act advances (less reserve for conditional 

benefits) 196,018,731 

(if) Miscellaneous 103,820,344 

1,110,654,379 

7. Securities held in trust, schedule H 26,016,102 

8. Deferred charges — 

(a) Unamortized portions of actuarial deficiencies — 

Canadian forces superannuation account 524,849,000 

Public service superannuation account 276,661,000 

Royal Canadian Mounted Police superannuation account 3,533,000 

(6) Unamortized loan flotation costs, appendix No. 7 131,601,094 

986,644,094 

9. Suspense accounts, schedule 1 136, 101 

10. Capital assets 1 

11. Inactive loans and investments, schedule J 94,824,381 

Total assets 11,425, 753,960 

12. Less: Reserve for realization of assets —546,384,065 

Net assets 10,879,369,895 

13. Net debt, represented by excess of liabilities over net assets, 

schedule K 13, 919, 769, 972 



24,799,139,867 



March 31, 1962 

$ 895.321,334 

223,379,565 

94,608,163 

32,707,390 

1,246,016.452 

1,793,000,000 

19,432,331 
3,985,329,459 
1,339,796,827 



659,935,897 
97,879,073 

177,355,101 

58,693,017 

993,863,088 

25,836,647 



326,300,000 
276,661,000 
3,533,000 
121,332,197 
727,826,197 

136,101 

1 

94,824,381 

10,226,061,484 

-546,384,065 

9.679,677,419 



13,228,137,045 
22,907,814,464 



Net increase 
or decrease ( — ) 
during 1962-63 



$ -383,974,180 

19,887,445 

-61,128,000 

-530,494 

-425, 74S, 229 

943,000,000 

2,879,514 

482,789,909 

-129,020,361 



34,061,782 
18,938,552 

18,663,630 

45,127,327 

116,791,291 



179,455 



198,549,000 



10,268,897 
208,817,897 



1,199,692,476 

1,199,692,476 

691,632,927 
1,891,325,403 



The notes appearing on page 114 are an integral part of this Statement of Assets and Liabilities. 



H. R. RALLS, 

Comptroller of the Treasury. 



R. B. BRYCE, 

Deputy Minister of Finance. 



(The schedules and the appendix referred to in above Statement, and the pages referred to 
in the two notes, arc to be found in the Public Accounts, Volume I) 



AUDITOR GENERAL'S REPORT 



169 
EXHIBIT 2 



OF CANADA 

LIABILITIES AS AT MARCH 31, 1963 
as at March 31, 1962) 



LIABILITIES 



March 31, 1963 

14. Current and demand liabilities, schedule L 

(a) Outstanding treasury cheques $ 266,408,863 

(6) Accounts payable (that portion paid in April of the next 

following fiscal year) 267,364, 119 

(c) Non-interest-bearing notes payable to the international 

monetary fund and the international development 

association 757,284,519 

(d) Matured debt outstanding 32,466,821 

(e) Interest due and outstanding 79,4i> 

(/) Interest accrued 196,973,991 

{g) Other current liabilities 31,379,226 

1,631,838,482 

15. Deposit and trust accounts, schedule M 225, 202, 751 

16. Annuity, insurance and pension accounts, schedule N 4,747,016,868 

17. Undisbursed balances of appropriations to special accounts, 

schedule O 1 1 9, 951 , 698 

18. Deferred credits, schedule P 107, 739, 147 

19. Suspense accounts, schedule Q 6,054,640 

20. Unmatured debt, schedule R. 

(a) Bonds 15, 796, 836, 331 

(6) Treasury bills 2, 165,000,000 

17, 961, 836, 331 



March 31, 1962 



Net increase 
or decrease (— ) 
during 1962-63 



Note: 

The indirect or contingent liabilities of the Government of 
Canada, consisting of railway securities guaranteed as to prin- 
cipal and interest, $1,381,361,480; other guarantees of 
$5,352,844,627; together with certain indeterminate guarantees, 
are listed on page 180. 



S 265,658,447 $ 750,416 

280,711,177 -13,347,058 



372,031,620 
36,438,562 
73,845,656 

174,601,049 

30,794,396 

1,234,080,907 

266,624,103 

4,245,941,809 

115,135,367 

94,991,098 

5,305,046 



15,060,736,134 

1,885,000,000 

16,94-5,736,134 



385,252,899 

-3,971,741 

5,015,237 

22,372,942 

584,830 

397,257,525 

-41,421,352 

501,075,059 

4,816,331 

12,748,049 

749,594 



736,100,197 

280,000,000 

1,016,100,197 



Total liabilities. 



24,799,139,867 



22,907,814,464 



1,891,325,403 



Auditor General's Certificate 

The above Statement has been examined in accordance with the provisions of the Financial Administration Act. I have 
obtained all the information and explanations I have required and, subject to the comments in my report to the House of Com- 
mons, I certify that the Statement is in agreement with the accounts maintained by the Department of Finance and that, in my 
opinion, it exhibits a correct view of the financial position of Canada as at March 31, 1963. 



M. HENDERSON, 
Auditor General, 



170 



AUDITOR CENTRALS REPORT 



KXII1BIT 3 



SUMMARY OF APPROPRIATIONS. KVI'KMII 1 1 NFS AND I NEXPENDED BALANCES 
IH DEPARTMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1963 



Section 



l 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

IS 

16 
16 

17 
18 
19 
20 
21 
22 
23 
24 

25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
35 
35 
36 



■ incut 



Agriculture 

Atomic Energy 

Auditor ( ieneral'a office 

Board of Broadcast Governors 

( ianariian Broadcasting ( 'orporation 

( (ffice of t he ( Jhief I Sectoral Officer . 

( 'itizeriship and I mm Juration 

( 'ivil Service < lommission 

Defence Production 

External Affairs 

Finance 

Fisheries 

Forestry 

Governor General and Lieutenant- 
Governors 

Insurance 

Jusf ice 

< >ffice of the Commissioner of 
Penitentiaries 

Labour 

Legislation 

Mines and Technical Surveys 

National Defence 

National Film Board 

Nat ional Gallery of Canada 

National Health and Welfare 

National Research Council, including the 
Medical Research Council 

National Kevenue 

Northern Affairs and National Resources... 

Post Office 

Privy ( louncil 

Public Archives and National Library 

Public Printing and Stationery 

Public Works 

Royal Canadian Mounted Police 

Secretary of State 

Trade and I 'ommerce 

Transport 

( 'anadian Maritime Commission 

National 1 1 arbours Hoard 

uis Affairs 



Appropriations 



243, 119,696 
63,223,215 

1,232,508 

357,935 

81,769,476 

11,816,862 

67,920,929 
4,i)til,300 
29,292,349 
88,644,002 
1,355,900,674 
24,825,321 
17,111,192 

484,388 
1,422,818 
9,958,690 

27,688,527 

("398,576,415 

8,471,521 

72,342,851 

1,583,120,395 

5,610,700 

1,039,700 

1,127,304,330 



41,033, 

79,791, 

91,970, 

189,943, 

6,794, 

1,049, 

4,088, 

175,706, 

65,917, 

4,841, 

»>32,122, 

392,154, 

30,974, 

5,195, 

342,573, 



953 
323 
435 
870 
714 
244 
600 
970 
308 
138 
591 
983 
434 
400 
721 



"6,690,444,438 



Expenditures 



234, 8 

63.205,370 

1.21- 

353,913 

80.8i;,, 'J47 

11,815,352 

66,237,381 

4,792,379 

28,837,778 

85,196,665 

1,355,079,838 

23,292,700 

16,174,971 

467,638 
1,422,120 
9,802,920 

24,728,736 

348,235,508 

8,108,063 

71,130,401 

1,574,853,661 

5,610,630 

987,271 

1,123,420,683 

40,596,727 

78,607,667 

87,563,579 

189,344,410 

5,016,879 

1,035,471 

3,977,442 

171,384,711 

65,424,359 

4,788,258 

30,364,666 

379,857,576 

30,967,817 

5,194,07'.! 

335,602,449 



< 4 >6, 570, 34 1,805 



Unexpended Balances 



Lapsed 



828.000 



147,143 



191,125 



13,396 



4,148,372 



<*>4,828,036 



7,964,739 

17,845 

13.674 

4,022 

806,386 

1,510 

1,683,548 

168,921 

454,571 

3,256,272 

910,736 

1,532,621 

986,821 

16,750 

698 

155,770 

2,959,792 

23,603,639 

363,458 

1,212,450 

8,266,734 

70 

52,429 

3,883,647 

437,226 

1,183,656 

4,406,856 

599,460 

1,777,835 

13,773 

111,158 

4,322,259 

492,949 

52,880 

1,757,925 

12,284,011 

6,617 

1,321 

2,822,900 



88,537,329 



Carried 
forward ' 



26,737,268 



26,737,268 



\ vailable for expenditure in 1963-64. 

<2) Due to special requirements of the period financed by Governor General Warrants for <" the redemption of warrants 
in excess of amount appropriated <2) the spending of revenue W payments beyond the estimated Canadian dollar equivalent of 
foreicn currency. 

l3) Includes amounts carried forward from 1961-62 appropriations: Department of Labour $37,457,432 and Department of 
Trade and Commerce $1,169,799. 

( " In addition, parts of appropriations in respect of the following departments and expenditures in similar amounts were 
transferred to "Other Loans and Investments", as follows: Agriculture $4,376,328 and National Health and Welfare $2,000. 

II. R. BALLS, 

Comptroller of the Treasury. 
Auditor Genital's Certificate 
The accounts relating to the expenditures as set forth in the above Statement have been examined under my direction and, 
subject to the comments in my report to the House of Commons, I certify that, in my opinion, the Statement gives a correct 
summary for the year ended March 31, 1963. 

\. M. HENDERSON, 
Auditor Qmeral. 



(The sections referred lo in the above Summary arc those in the Public Accounts, Volume II) 



AUDITOR GENERAL'S REPORT 



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